The lung serves as a primary organ for gas exchange in the human body. However, during clinically apparent lung insults such as bacterial pneumonia, the blood-alveolar barrier is disrupted, immune cells are recruited, and lung biomechanics are altered. These processes impair lung function acutely with major contributions from the lung vasculature. The pulmonary vasculature normally provides an 8km long vascular network interfacing with the 50-100m2 epithelial surface of the lung. This vasculature is a critical regulator of lung development, homeostasis, and function; yet to date, 3D organ-on-a-chip lung models have largely relied on planar vascular structures that do not recapitulate a true microvascular compartment. Here, we generate a human vascularized lung on a chip (LoC) containing a ventilated epithelial lined air-liquid interface surrounded by human lung fibroblasts and a functional microvascular network. We perform detailed transcriptomic, morphologic, and functional characterization of the LoC to demonstrate the physiologic relevance of this model and examine acute inflammation during bacterial pneumonia. Using scRNAseq we observe enhanced cellular differentiation, function, and crosstalk in LoC 3D co-culture. During bacterial infection with Streptococcus pneumoniae, the most common bacterial cause of human pneumonia, we identify a sequence of events where infection causes compartmentalized inflammatory responses and intravascular immune cell recruitment. This precedes complete air-blood barrier breakdown, tissue destruction associated with necroptotic cell death, and loss of tissue elasticity. Finally, using selective protease inhibitors we demonstrate a role for ADAM10 sheddase in driving neutrophil infiltration and epithelial dysfunction during pneumococcal pneumonia. This model provides a novel platform to mechanistically explore lung homeostasis and human lung diseases with potential for integration into existing human drug development pipelines.