While mouse models have contributed in our understanding of lung development, repair and regeneration, inherent differences between the murine and human airways requires the development of new models using human airway epithelial cells. In this study, we describe a three-dimensional model system using human bronchial epithelial cells (HBECs) cultured on reconstituted basement membrane. HBECs form complex budding and branching structures on reconstituted basement membrane when co-cultured with human lung fetal fibroblasts. These structures are reminiscent of the branching epithelia during lung development. The HBECs also retain markers indicative of epithelial cell types from both the central and distal airways suggesting their multipotent potential. In addition, we illustrate how the model can be utilized to understand respiratory diseases such as lung cancer. The 3D novel cell culture system recapitulates stromal-epithelial interactions in vitro that can be utilized to understand important aspects of lung development and diseases.