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To identify the pathways involved in adult lung regeneration, we have employed left unilateral pneumonectomy (PNX) model that promotes regenerative alveolarization in the remaining intact right lung lobes. Here, we show that PNX stimulates pulmonary capillary endothelial cells (PCECs) to produce paracrine (angiocrine) growth factors that induce proliferation of epithelial progenitor cells supporting alveologenesis. After PNX, endothelial-specific inducible genetic ablation of Vegfr2 and Fgfr1 in mice inhibited production of MMP14 impairing alveolarization. MMP14 via unmasking cryptic EGF-like ectodomain and activation of EGF-receptor (EGFR) expands epithelial progenitor cells. Neutralization of MMP14 impaired EGFR-ligand mediated alveolar regeneration. By contrast, administration of recombinant EGF, or intravascular transplantation of MMP14+ PCECs from wild-type mice, into pneumonectomized Vegfr2/Fgfr1 deficient mice restored alveologenesis and lung inspiratory volume and compliance function. This study shows that VEGFR2 and FGFR1 activation in PCECs by increasing MMP14-dependent bioavailability of EGFR-ligands initiates and sustains alveologenesis and holds promise to develop therapeutic strategies to promote lung regeneration.