Organ regeneration requires dynamic cell interactions to reestablish cell numbers and tissue architecture. While we know the identity of progenitor cells that replace lost tissue, the transient states they give rise to and their role in repair remain elusive. Here, using multiple injury models, we find that alveolar fibroblasts acquire distinct states marked by Sfrp1 and Runx1 that influence tissue remodeling and reorganization. Unexpectedly, ablation of alveolar epithelial type-1 (AT1) cells alone is sufficient to induce tissue remodeling and transitional states. Integrated scRNA-seq followed by genetic interrogation reveals RUNX1 is a key driver of fibroblast states. Importantly, the ectopic induction or accumulation of epithelial transitional states induce rapid formation of transient alveolar fibroblasts, leading to organ-wide fibrosis. Conversely, the elimination of epithelial or fibroblast transitional states or RUNX1 loss, leads to tissue simplification resembling emphysema. This work uncovered a key role for transitional states in orchestrating tissue topologies during regeneration.