Idiopathic pulmonary fibrosis (IPF) is a chronic, progressive lung disease that leads to respiratory failure and death due to irreversible scarring of the distal lung. While historically considered a chronic inflammatory disorder, the aberrant function of the alveolar epithelium is now recognized to play a central role in IPF pathophysiology. This study aimed to investigate the regenerative capacity of AT2 cells using IPF-derived alveolar organoids and to examine the effects of disease progression on this capacity. Lung tissues from 3 pneumothorax patients and 6 IPF patients (early and advanced stages) were obtained by VATS and lung transplantation. HTII-280+ cells were isolated from CD31-CD45-EpCAM+ cells in the distal lungs of IPF and pneumothorax patients using fluorescence-activated cell sorting (FACS) and resuspended in 48-well plates to establish IPF-derived alveolar organoids. Immuno-staining was used to confirm the presence of AT2 cells. FACS sorting yielded approximately 1% AT2 cells of the total cells in early IPF tissue, and the number decreased as the disease progressed, compared with 2.7% in pneumothorax. Additionally, the cultured organoids in the IPF groups were smaller in size and fewer in number compared to those from pneumothorax patients. The colony-forming efficiency decreased as the disease progressed. In immuno-staining results, the IPF organoids showed lower expression of SFTPC compared to the pneumothorax group and contained KRT5+ cells. This study confirmed that the regenerative capacity of AT2 cells in IPF decreases as the disease progresses, and IPF AT2 cells inherently exhibit functional abnormalities and altered differentiation plasticity.