The specification, characterization, and fate of alveolar type 1 and type 2 (AT1 and 2) progenitors during embryonic lung development remains mostly elusive. In this paper, we build upon our previously published work on the regulation of airway epithelial progenitors by fibroblast growth factor receptor 2b (Fgfr2b) signalling during early (E12.5) and mid (E14.5) pseudoglandular lung development. Here, we looked at the regulation by Fgfr2b signalling on alveolar progenitors during late pseudoglandular/early canalicular (E14.5-E16.5) development. Using a dominant negative mouse model to conditionally inhibit Fgfr2b ligands at E16.5, we used gene array analyses to characterize a set of potential direct targets of Fgfr2b signalling. By mining published single-cell RNA sequence (scRNAseq) datasets, we showed that these Fgfr2b signature genes narrow on a discreet subset of AT2 cells at E17.5 and in adult lungs. Furthermore, we demonstrated that Fgfr2b signalling is lost in AT2 cells in their transition to AT1 cells during repair after injury. We also used CreERT2-based mouse models to conditionally knock-out the Fgfr2b gene in AT2 and in AT1 progenitors, as well as lineage label these cells. We found, using immunofluorescence, that in wildtype controls AT1 progenitors labeled at E14.5-E15.5 contribute a significant proportion to AT2 cells at E18.5; while AT2 progenitors labeled at the same time contribute significantly to the AT1 lineage. We show, using immunofluorescence and FACS-based analysis, that knocking out of Fgfr2b at E14.5-E15.5 in AT2 progenitors leads to an increase in lineage-labeled AT1 cells at E18.5; while the reverse is true in AT1 progenitors. Furthermore, we demonstrate that increased Fgfr signalling in AT2 progenitors reduces their contribution to the AT1 pool. Taken together, our results suggest that a significant proportion of AT2 and AT1 progenitors are cross-lineage committed during late pseudoglandular development, and that lineage commitment is regulated in part by Fgfr2b signalling. We have characterized a set of direct Fgfr2b targets at E16.5 which are likely involved in alveolar lineage formation. These signature genes concentrate on a subpopulation of AT2 cells later in development, and are downregulated in AT2 cells transitioning to the AT1 lineage during repair after injury in adults. Our findings highlight the extensive heterogeneity of alveolar cells by elucidating the role of Fgfr2b signalling in these cells during early alveolar lineage formation, as well as during repair after injury.