Worldwide, the incidence of both preterm births and chronic lung disease of infancy, or bronchopulmonary dysplasia, remains high. Infants with bronchopulmonary dysplasia have larger and fewer alveoli, a lung pathology that can persist into adulthood. Although recent data point to a role for hypoxia-inducible factor-1α (HIF-1α) in mediating pulmonary angiogenesis and alveolarization, the cell-specific role of HIF-1α remains incompletely understood. Thus, we hypothesized that HIF-1α, in a distinct subset of mesenchymal cells, mediates postnatal alveolarization. To test the hypothesis, we generated mice with a cell-specific deletion of HIF-1α by crossing SM22α promoter-driven Cre mice with HIF-1α mice (SM22α-HIF-1α), determined SM-22α-expressing cell identity using single-cell RNA sequencing, and interrogated samples from preterm infants. Deletion of HIF-1α in SM22α-expressing cells had no effect on lung structure at day 3 of life. However, at 8 days, there were fewer and larger alveoli, a difference that persisted into adulthood. Microvascular density, elastin organization, and peripheral branching of the lung vasculature were decreased in SM22α-HIF-1α mice, compared with control mice. Single-cell RNA sequencing demonstrated that three mesenchymal cell subtypes express SM22α: myofibroblasts, airway smooth muscle cells, and vascular smooth muscle cells. Pulmonary vascular smooth muscle cells from SM22α-HIF-1α mice had decreased angiopoietin-2 expression and, in coculture experiments, a diminished capacity to promote angiogenesis that was rescued by angiopoietin-2. Angiopoietin-2 expression in tracheal aspirates of preterm infants was inversely correlated with overall mechanical ventilation time, a marker of disease severity. We conclude that SM22α-specific HIF-1α expression drives peripheral angiogenesis and alveolarization in the lung, perhaps by promoting angiopoietin-2 expression.