Cancer models based on cells derived from human embryonic stem cells (hESCs) may reveal why certain constellations of genetic changes drive carcinogenesis in specialized lineages. Here we demonstrate that inhibition of NOTCH signaling induces up to 10% of lung progenitor cells to form pulmonary neuroendocrine cells (PNECs), putative precursors to small cell lung cancers (SCLCs), and we can increase PNECs by reducing levels of retinoblastoma (RB) proteins with inhibitory RNA. Reducing levels of TP53 protein or expressing mutant or genes did not induce or expand PNECs, but tumors resembling early-stage SCLC grew in immunodeficient mice after subcutaneous injection of PNEC-containing cultures in which expression of both and was blocked. Single-cell RNA profiles of PNECs are heterogeneous; when RB levels are reduced, the profiles resemble those from early-stage SCLC; and when both RB and TP53 levels are reduced, the transcriptome is enriched with cell cycle-specific RNAs. Our findings suggest that genetic manipulation of hESC-derived pulmonary cells will enable studies of this recalcitrant cancer.