To form a diffusible interface large enough to conduct respiratory gas exchange with the circulation, the lung endoderm undergoes extensive branching morphogenesis and alveolization, coupled with angiogenesis and vasculogenesis. It is becoming clear that many of the key factors determining the process of branching morphogenesis, particularly of the respiratory organs, are highly conserved through evolution. Synthesis of information from null mutations in Drosophila and mouse indicates that members of the sonic hedgehog/patched/smoothened/Gli/FGF/FGFR/sprouty pathway are functionally conserved and extremely important in determining respiratory organogenesis through mesenchymal-epithelial inductive signaling, which induces epithelial proliferation, chemotaxis and organ-specific gene expression. Transcriptional factors including Nkx2.1, HNF family forkhead homologues, GATA family zinc finger factors, pou and hox, helix-loop-helix (HLH) factors, Id factors, glucocorticoid and retinoic acid receptors mediate and integrate the developmental genetic instruction of lung morphogenesis and cell lineage determination. Signaling by the IGF, EGF and TGF-beta/BMP pathways, extracellular matrix components and integrin signaling pathways also directs lung morphogenesis as well as proximo-distal lung epithelial cell lineage differentiation. Soluble factors secreted by lung mesenchyme comprise a 'compleat' inducer of lung morphogenesis. In general, peptide growth factors signaling through cognate receptors with tyrosine kinase intracellular signaling domains such as FGFR, EGFR, IGFR, PDGFR and c-met stimulate lung morphogenesis. On the other hand, cognate receptors with serine/threonine kinase intracellular signaling domains, such as the TGF-beta receptor family are inhibitory, although BMP4 and BMPR also play key inductive roles. Pulmonary neuroendocrine cells differentiate earliest in gestation from among multipotential lung epithelial cells. MASH1 null mutant mice do not develop PNE cells. Proximal and distal airway epithelial phenotypes differentiate under distinct transcriptional control mechanisms. It is becoming clear that angiogenesis and vasculogenesis of the pulmonary circulation and capillary network are closely linked with and may be necessary for lung epithelial morphogenesis. Like epithelial morphogenesis, pulmonary vascularization is subject to a fine balance between positive and negative factors. Angiogenic and vasculogenic factors include VEGF, which signals through cognate receptors flk and flt, while novel anti-angiogenic factors include EMAP II.