Mouse lung development begins when two lung buds sprout from the epithelium of the embryonic gut. Patterning of the airways is then accomplished by the outgrowth and repetitive branching of the two lung buds, a process called branching morphogenesis. One of the four fibroblast growth factor (FGF) receptor genes, FGFR2, is expressed in the epithelium of a number of embryonic organs including the lung buds. To block the function of FGFR2 during branching morphogenesis of the lung without affecting its function in other embryonic tissues, the human surfactant protein C promoter was used to target expression of a dominant negative FGFR2 exclusively to lung bud epithelium in transgenic mice. Newborn mice expressing the transgene were completely normal except that instead of normally developed lungs they had two undifferentiated epithelial tubes that extended from the bifurcation of the trachea down to the diaphragm, a defect that resulted in perinatal death. Thus, the dominant negative FGF receptor completely blocked airway branching and epithelial differentiation, without prohibiting outgrowth, establishing a specific role for FGFs in branching morphogenesis of the mammalian lung.