Severe acute respiratory syndrome coronavirus 2 (SARS-CoV-2), which is the cause of a present pandemic, infects human lung alveolar type 2 (hAT2) cells. Characterizing pathogenesis is crucial for developing vaccines and therapeutics. However, the lack of models mirroring the cellular physiology and pathology of hAT2 cells limits the study. Here, we develop a feeder-free, long-term, three-dimensional (3D) culture technique for hAT2 cells derived from primary human lung tissue and investigate infection response to SARS-CoV-2. By imaging-based analysis and single-cell transcriptome profiling, we reveal rapid viral replication and the increased expression of interferon-associated genes and proinflammatory genes in infected hAT2 cells, indicating a robust endogenous innate immune response. Further tracing of viral mutations acquired during transmission identifies full infection of individual cells effectively from a single viral entry. Our study provides deep insights into the pathogenesis of SARS-CoV-2 and the application of defined 3D hAT2 cultures as models for respiratory diseases.