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Introduction Pulmonary emphysema is a major component of chronic obstructive pulmonary disease (COPD). Emphysema progression attributed not only to alveolar structure loss and pulmonary regeneration impairment, but also to excessive inflammatory response, proteolytic and anti-proteolytic activity imbalance, lung epithelial cells apoptosis, and abnormal lung remodeling. To ameliorate lung damage with higher efficiency in lung tissue engineering and cell therapy, pre-differentiating graft cells into more restricted cell types before transplantation could enhance their ability to anatomically and functionally integrate into damaged lung. In this study, we aimed to evaluate the regenerative and repair ability of lung alveolar epithelium in emphysema model by using lung epithelial progenitors which pre-differentiated from amniotic fluid mesenchymal stem cells (AFMSCs). Methods Pre-differentiation of eGFP-expressing AFMSCs to lung epithelial progenitor-like cells (LEPLCs) was established under a modified small airway growth media (mSAGM) for 7-day induction. Pre-differentiated AFMSCs were intratracheally injected into porcine pancreatic elastase (PPE)-induced emphysema mice at day 14, and then inflammatory-, fibrotic-, and emphysema-related indices and pathological changes were assessed at 6 weeks after PPE administration. Results An optimal LEPLCs pre-differentiation condition has been achieved, which resulted in a yield of approximately 20% lung epithelial progenitors-like cells from AFMSCs in a 7-day period. In PPE-induced emphysema mice, transplantation of LEPLCs significantly improved regeneration of lung tissues through integrating into the lung alveolar structure, relieved airway inflammation, increased expression of growth factors such as vascular endothelial growth factor (VEGF), and reduced matrix metalloproteinases and lung remodeling factors when compared with mice injected with AFMSCs. Histopathologic examination observed a significant amelioration in DNA damage in alveolar cells, detected by terminal deoxynucleotidyltransferase-mediated dUTP nick end labeling (TUNEL), the mean linear intercept, and the collagen deposition in the LEPLC-transplanted groups. Conclusion Transplantation of predifferentiated AFMSCs through intratracheal injection showed better alveolar regeneration and reverse elastase-induced pulmonary emphysema in PPE-induced pulmonary emphysema mice. Electronic supplementary material The online version of this article (10.1186/s13287-019-1282-1) contains supplementary material, which is available to authorized users.