Lung transplantation is the only treatment available for end-stage lung diseases; however, donor shortage is a global issue. The use of human pluripotent stem cells (hPSCs) for organ regeneration is a promising approach. Nevertheless, methods for the expansion of isolated hPSC-derived lung progenitors (hLPs) for transplantation purposes have not yet been reported. Herein, we established an expansion system of hLPs based on their three-dimensional culture in core-shell hydrogel microfibers, that ensures the maintenance of their bipotency for differentiation into alveolar and airway epithelial cells including alveolar type II (AT2) cells. Further, we developed an efficient in vivo transplantation method using an endoscope-assisted transtracheal administration system; the successful engraftment and in vivo differentiation of hLPs into alveolar epithelial cells (incorporated into the alveoli) was observed. Importantly, expanded hLPs in the context of microfibers were successfully transplanted into the murine lungs, opening avenues for cell-based therapies of lung diseases. Therefore, our novel method has potential regenerative medicine applications; additionally, the high-quality hLPs and AT2 cells generated via the microfiber-based technology are valuable for drug discovery purposes.