The long-held concept that transplanted bone marrow (BM)-derived cells contribute only to cells of the hematopoietic system was challenged by data from our laboratory showing that a single male BM-derived cell could not only reconstitute the hematopoietic system of an irradiated female recipient, but could also lead to the generation of mature BM-derived epithelial cells in the liver, lung, skin, and gastrointestinal tract. Careful costaining and single-cell analyses have been used to rule out false positive cells due to inadequate detection techniques in microscopy or cell overlay. Since this initial discovery, we have sought to understand the mechanisms underlying the formation of BM-derived epithelial cells, and to evaluate their therapeutic use for gene therapy and/or tissue regeneration. Several reports have shown that donor BM-derived cells, possibly macrophages, can fuse with existing host epithelial cells to form heterokaryons that express both donor and tissue-specific markers. While this is certainly true for murine tyrosinemia models, we have used a Cre-lox system to demonstrate that fusion is not a requirement for the generation of BM-derived epithelial cells and is likely not responsible for the BM-derived epithelial cells generated after standard BM transplantation. In a proof of principal experiment for potential gene therapy applications, we have shown that autologous BM-derived cells transfected with a transgene prior to BM transplantation are able to develop into mature type-II pneumocytes that express the transgene. We also discuss future research directions in the field and the therapeutic potential of BM-derived epithelia, including ongoing work to test whether combined cell and gene therapy can be used therapeutically in preclinical mouse models of human disease.