An in vitro microfluidic “organ-on-chip” device is described herein that mimics the structure and at least one function of specific areas of the epithelial system in vivo. In particular, a stem cell-based Lung-on-Chip is described. This in vitro microfluidic system can be used for modeling differentiation of cells on-chip into lung cells, e.g., a lung (Lung-On-Chip), bronchial (Airway-On-Chip; small-Airway-On-Chip), alveolar sac (Alveolar-On-Chip), etc., for use in modeling disease states of derived tissue, i.e. as healthy, pre-disease and diseased tissues. Additionally, stem cells under differentiation protocols for deriving (producing) differentiated lung cells off-chips may be seeded onto microfluidic devices at any desired point during the in vitro differentiation pathway for further differentiation on-chip or placed on-chip before, during or after terminal differentiation. Additionally, these microfluidic “stem cell-based Lung-on-Chip” allow identification of cells and cellular derived factors driving disease states in addition to drug testing for diseases, infections and for reducing inflammation effecting lung alveolar and/or epithelial regions. Further, fluidic devices are provided seeded with primary alveolar cells for use in providing a functional Type II and Type I cell layer, wherein Type II cells express and secrete surfactants, such as Surfactant B (Surf B; SP-B) and Surfactant C (Surf C; SP-C), which were detectable at the protein level by antibody staining in Type II cells. A number of uses are contemplated for the devices and cells, including but not limited to, for use under inflammatory conditions, in drug development and testing, and for individualized (personalized) medicine. Moreover, an ALI-M was developed for supporting multiple cell types in co-cultures with functional Type II and Type I cells.