During the later stages of lung development, two types of pneumocytes, cuboidal type II (AECII) and flattened type I (AECI) alveolar epithelial cells, form distal lung saccules. Here, we highlight how fibroblasts expressing MAP-microtubule affinity regulating kinase 1 (Mark1) are required for the terminal stages of pulmonary development, called lung sacculation. In Mark1-knockout (KO) mice, distal sacculation and AECI flattening are significantly impaired. Fetal epithelial cells generate alveolar organoids and differentiate into pneumocytes when co-cultured with fibroblasts. However, the size of organoids decreased and AECI flattening was impaired in the presence of Mark1 KO fibroblasts. In Mark1 KO fibroblasts themselves, cilia formation and the Hedgehog pathway were suppressed, resulting in the loss of type I collagen expression. The addition of type I collagen restored AECI flattening in organoids co-cultured with Mark1 KO fibroblasts and rescued the decreased size of organoids. Mathematical modeling of distal lung sacculation supports the view that AECI flattening is necessary for the proper formation of saccule-like structures. These results suggest that Mark1-mediated fibroblast activation induces AECI flattening and thereby regulates distal lung sacculation.