Induced pluripotent stem (iPS) cells derive from autologous somatic cells, the application prospect of iPS cells for regenerative medicine and tissue engineering is better than embryonic stem cells (ESCs) to some extent. Alveolar type II (AT II) epithelial cells play key role in the injured lung tissue regeneration and function recovery. The differentiation of iPS cells into AT II cells could provide available source for injured lung treatment. In this study, rat iPS (riPS) cells were resuscitated and proliferated for 14 days before differentiation. A modified three-step induction protocol similar to the reported ESCs inducing procedure was used in this study for the differentiation groups. Routine cell culture was done to the riPS cell control group (riPS-con). At stage 3, cells of day 7 (Diff. 7) and day 14 (Diff. 14) were collected for the real-time polymerase chain reaction tests for gene expressions of Oct4, Nanog, SPA, SPB, SPC, SPD, and CC10. Immunofluorescence staining of SPC and SSEA-1 was conducted. At the end of the differentiation, cell morphology became outstretched and epithelium-like. Cells of the Diff. 14 group positively expressed SPC and negatively expressed SSEA-1, which is contrary to the riPS-con group. In the Diff. 7 and the Diff. 14 groups, the expression of Oct4, Nanog, and SPB decreased (P < 0.05), whereas the expression of SPA, SPC, SPD (P < 0.05), and CC10 (P > 0.05) increased. This study indicated that riPS cells can successfully differentiate into AT II epithelial cells with the three-step induction protocol and may be further applied to implanting in decellularized rat lung scaffolds and building a bio-artificial lung.