Chronic inflammation and dysregulated repair mechanisms after epithelial damage have been implicated in COPD. However, the lack of ex vivo-models that accurately reflect multicellular lung tissue hinders our understanding of epithelial-mesenchymal interactions in COPD. Through a combination of transcriptomic and proteomic approaches applied to a sophisticated in vitro iPSC- alveolosphere with fibroblasts model, epithelial-mesenchymal cross-talk was explored in COPD and following SARS-CoV-2 infection. These experiments profiled dynamic changes at single-cell level of the SARS-CoV-2-infected alveolar niche that unveiled the complexity of aberrant inflammatory responses, mitochondrial dysfunction, and cell death in COPD, which provides deeper insights into the accentuated tissue damage/inflammation/remodeling observed in patients with SARS-CoV-2 infection. Importantly, this 3D system allowed for the evaluation of ACE2-neutralizing antibodies and confirmed the potency of this therapy to prevent SARS-CoV-2 infection in the alveolar niche. Thus, iPSC- alveolosphere cultured with fibroblasts provides a promising model to investigate disease-specific mechanisms and to develop novel therapeutics.