To identify pathways involved in adult lung regeneration, we employ a unilateral pneumonectomy (PNX) model that promotes regenerative alveolarization in the remaining intact lung. We show that PNX stimulates pulmonary capillary endothelial cells (PCECs) to produce angiocrine growth factors that induce proliferation of epithelial progenitor cells supporting alveologenesis. Endothelial cells trigger expansion of cocultured epithelial cells, forming three-dimensional angiospheres reminiscent of alveolar-capillary sacs. After PNX, endothelial-specific inducible genetic ablation of Vegfr2 and Fgfr1 in mice inhibits production of MMP14, impairing alveolarization. MMP14 promotes expansion of epithelial progenitor cells by unmasking cryptic EGF-like ectodomains that activate the EGF receptor (EGFR). Consistent with this, neutralization of MMP14 impairs EGFR-mediated alveolar regeneration, whereas administration of EGF or intravascular transplantation of MMP14⁺ PCECs into pneumonectomized Vegfr2/Fgfr1-deficient mice restores alveologenesis and lung inspiratory volume and compliance function. VEGFR2 and FGFR1 activation in PCECs therefore increases MMP14-dependent bioavailability of EGFR ligands to initiate and sustain alveologenesis.