The Sry-related high mobility group box transcription factor Sox17 is required for diverse developmental processes including endoderm formation, vascular development, and fetal hematopoietic stem cell maintenance. Expression of Sox17 in mature respiratory epithelial cells causes proliferation and lineage respecification, suggesting that Sox17 can alter adult lung progenitor cell fate. In this paper, we identify mechanisms by which Sox17 influences lung epithelial progenitor cell behavior and reprograms cell fate in the mature respiratory epithelium. Conditional expression of Sox17 in epithelial cells of the adult mouse lung demonstrated that cell cluster formation and respecification of alveolar progenitor cells toward proximal airway lineages were rapidly reversible processes. Prolonged expression of Sox17 caused the ectopic formation of bronchiolar-like structures with diverse respiratory epithelial cell characteristics in alveolar regions of lung. During initiation of progenitor cell behavior, Sox17 induced proliferation and increased the expression of the progenitor cell marker Sca-1 and genes involved in cell cycle progression. Notably, Sox17 enhanced cyclin D1 expression in vivo and activated cyclin D1 promoter activity in vitro. Sox17 decreased the expression of transforming growth factor-beta (TGF-beta)-responsive cell cycle inhibitors in the adult mouse lung, including p15, p21, and p57, and inhibited TGF-beta1-mediated transcriptional responses in vitro. Further, Sox17 interacted with Smad3 and blocked Smad3 DNA binding and transcriptional activity. Together, these data show that a subset of mature respiratory epithelial cells retains remarkable phenotypic plasticity and that Sox17, a gene required for early endoderm formation, activates the cell cycle and reinitiates multipotent progenitor cell behavior in mature lung cells.