Abstract This study demonstrates the high‐resolution profiling of cloud microphysics in a laboratory chamber using Time‐Correlated Single Photon Counting (TCSPC) LiDAR. We present a novel retrieval method to derive vertical extinction (σ) $(sigma )$ profiles, constrained by in situ measurements, to diagnose responses to dry‐air entrainment. In clean clouds, the LiDAR signals and retrieved σ $sigma $ remain relatively uniform, with entrainment effects confined to the upper layer. In contrast, polluted clouds exhibit strong vertical variability and a transition to a water‐vapor‐limited state. Entrainment significantly enhances the haze number concentration Nh $left({N}_{h}right)$, particularly near the bottom, creating highly height‐dependent extinction profiles for polluted clouds. Our results highlight the capability of high‐resolution LiDAR in capturing fine‐scale vertical inhomogeneities. This approach provides a robust framework for quantifying how aerosol loading modulates entrainment sensitivity, offering new insights into the transition between buffered and water‐vapor‐limited regimes.