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Understanding the cellular processes that underlie early lung adenocarcinoma (LUAD) development is needed to devise intervention strategies 1 . Here we studied 246,102 single epithelial cells from 16 early-stage LUADs and 47 matched normal lung samples. Epithelial cells comprised diverse normal and cancer cell states, and diversity among cancer cells was strongly linked to LUAD-specific oncogenic drivers. KRAS mutant cancer cells showed distinct transcriptional features, reduced differentiation and low levels of aneuploidy. Non-malignant areas surrounding human LUAD samples were enriched with alveolar intermediate cells that displayed elevated KRT8 expression (termed KRT8 + alveolar intermediate cells (KACs) here), reduced differentiation, increased plasticity and driver KRAS mutations. Expression profiles of KACs were enriched in lung precancer cells and in LUAD cells and signified poor survival. In mice exposed to tobacco carcinogen, KACs emerged before lung tumours and persisted for months after cessation of carcinogen exposure. Moreover, they acquired Kras mutations and conveyed sensitivity to targeted KRAS inhibition in KAC-enriched organoids derived from alveolar type 2 (AT2) cells. Last, lineage-labelling of AT2 cells or KRT8 + cells following carcinogen exposure showed that KACs are possible intermediates in AT2-to-tumour cell transformation. This study provides new insights into epithelial cell states at the root of LUAD development, and such states could harbour potential targets for prevention or intervention., (© 2024. The Author(s).)