Alveolar formation increases the surface area for gas-exchange and is key to the physiological function of the lung. Alveolar epithelial cells, myofibroblasts and endothelial cells undergo coordinated morphogenesis to generate epithelial folds (secondary septa) to form alveoli. A mechanistic understanding of alveologenesis remains incomplete. We found that the planar cell polarity (PCP) pathway is required in alveolar epithelial cells and myofibroblasts for alveologenesis in mammals. Our studies uncovered a Wnt5a-Ror2-Vangl2 cascade that endows cellular properties and novel mechanisms of alveologenesis. This includes PDGF secretion from alveolar type I and type II cells, cell shape changes of type I cells and migration of myofibroblasts. All these cellular properties are conferred by changes in the cytoskeleton and represent a new facet of PCP function. These results extend our current model of PCP signaling from polarizing a field of epithelial cells to conferring new properties at subcellular levels to regulate collective cell behavior.