The SARS-CoV-2 virus has caused already over 3.5 million COVID-19 cases and 250,000 deaths globally. There is an urgent need to create novel models to study SARS-CoV-2 using human disease-relevant cells to understand key features of virus biology and facilitate drug screening. As primary SARS-CoV-2 infection is respiratory-based, we developed a lung organoid model using human pluripotent stem cells (hPSCs) that could be adapted for drug screens. The lung organoids, particularly aveolar type II cells, express ACE2 and are permissive to SARS-CoV-2 infection. Transcriptomic analysis following SARS-CoV-2 infection revealed a robust induction of chemokines and cytokines with little type I/III interferon signaling, similar to that observed amongst human COVID-19 pulmonary infections. We performed a high throughput screen using hPSC-derived lung organoids and identified FDA-approved drug candidates, including imatinib and mycophenolic acid, as inhibitors of SARS-CoV-2 entry. Pre- or post-treatment with these drugs at physiologically relevant levels decreased SARS-CoV-2 infection of hPSC-derived lung organoids. Together, these data demonstrate that hPSC-derived lung cells infected by SARS-CoV-2 can model human COVID-19 disease and provide a valuable resource to screen for FDA-approved drugs that might be repurposed and should be considered for COVID-19 clinical trials.