Bronchioloalveolar lung carcinoma (BAC) exhibits many features that distinguish it from bronchogenic carcinomas. For early detection, therapy, and prevention of BAC, it is essential to understand its pathogenesis. Development of BAC appears to be stepwise, and the earliest lesion to be recognized is atypical adenomatous hyperplasia (AAH), the proliferative lesion of atypical epithelial cells along the alveolar septa. Our review of the studies of AAH revealed that certain populations of AAH cells exhibit active proliferation, aneuploidy, 3p and 9p deletions, K-ras codon 12 mutation, and disruption of the cell cycle control, but p53 gene aberrations are rare and telomerase activation is absent. We emphasize that AAH is an alveolar intraepithelial neoplasia. This allows more precise analyses of the process and mechanism of the development of BAC. Furthermore, AAH could serve as a surrogate end-point biomarker in future chemoprevention trials. The criteria for the diagnosis of AAH and related lesions should be established as early as possible.