Introduction. Owing to wide availability, low cost and avoidance of ethical concerns, umbilical cord blood (UCB) provides an attractive source of stem cells for investigational and therapeutic uses. In this study, we sought to characterize the gene expression changes as stem cells from UCB differentiate toward alveolar type II pneumocytes (ATII). Methods. Control and experimental cells were cultured in maintenance medium (mesenchymal stem cell growth medium) or differentiation medium (small airway growth medium (SAGM)), respectively, for 8 days. Total RNA was isolated from control and experimental groups for gene expression profiling and real-time polymerase chain reaction assay. Results: Analysis of only mixed cell lines (n = 2) with parameters including a P value of 0.01 and an intergroup gap of 2.0 yielded a set of 373 differentially expressed genes. Prominently upregulated genes included several genes associated with ATII cells and also lung cancers: ALDH3A1, VDR and CHKA. Several upregulated genes have been shown to be integral or related to ATII functioning: SGK1, HSD17B11 and LEPR. Finally, several upregulated genes appear to play a role in lung cancers, including FDXR and GP96. Downregulated genes appear to be associated with bone, muscle and central nervous system tissues as well as other widespread tissues. Conclusions: To the best of our knowledge, this accounting of the gene expression changes associated with the differentiation of a human UCB-derived stem cell toward an ATII cell represents the first such effort. Dissecting which components of SAGM affect specific gene regulation events is warranted.