Pulmonary alveolar epithelium is comprised of two morphologically and functionally distinct cell types, alveolar epithelial type I (AT1) and type II (AT2) cells. Genetically modified mice with cell-specific Cre/loxP-mediated knockouts of relevant genes in each respective cell type would be useful to help elucidate the relative contributions of AT1 versus AT2 cells to alveolar homeostasis. Cre has previously been efficiently expressed in AT2 cells in mouse lung using the SP-C promoter; however, no transgenic mouse expressing Cre in AT1 cells has so far been available. In order to develop an AT1 cell-specific transgenic Cre mouse, we generated a knockin of a Cre-IRES-DsRed cassette into exon 1 of the endogenous Aqp5 gene, a gene expressed specifically in AT1 cells in the distal lung epithelium, resulting in the mouse line ACID (Aqp5-Cre-IRES-DsRed). Endogenous Aqp5 and transgenic Cre in ACID mice showed a very similar pattern of tissue distribution by RT-PCR. To analyze Cre activity, ACID was crossed to two Cre reporter strains, R26LacZ and mT/mG. Double transgenic offspring demonstrated reporter gene expression in a very high fraction of AT1 cells in the distal lung, while AT2 cells were negative. As expected, variable reporter expression was detected in several other tissues where endogenous Aqp5 is expressed (e.g., submandibular salivary gland and stomach). ACID mice should be of major utility in analyzing the functional contribution of AT1 cells to alveolar epithelial properties in vivo using Cre/loxP-mediated gene deletion technology.