Normal blood vessel formation is required for the development of nearly all organs during embryogenesis, including lung. Neonatal diseases such as persistent pulmonary hypertension of the newborn and alveolar capillary dysplasia are thought to result in large part from a failure of normal lung vascular development. Therefore, in the past decade, there has been increasing interest in studying the mechanisms underlying the development of the lung circulation to better understand the pathogenesis of these often lethal neonatal lung diseases. It has now been well accepted that in addition to its protean roles in the maintenance of vascular homeostasis, endothelium-derived nitric oxide also plays a pivotal role in postnatal angiogenesis, mediating downstream signaling in response to classic angiogenic factors. Recent findings in endothelial nitric oxide synthase (eNOS)-deficient mice point to a novel and previously unrecognized role of eNOS-NO pathway in fetal lung vascular development and lung morphogenesis. The lung phenotype of eNOS mutants closely resembles alveolar capillary dysplasia in humans, a universally fatal form of persistent pulmonary hypertension of the newborn that presents with defective lung vascular development and respiratory distress in newborn. We anticipate that these new insights into the basic mechanisms of lung vascular development may lead to novel therapeutic strategies for neonatal lung diseases.