It is becoming increasingly recognized that the ubiquitous, inducible transcription factor nuclear factor-κB (NF-κB) is involved in developmental processes. For example, NF-κB acts as a mediator of epithelial–mesenchymal interactions in the developing chick limb. We investigated the role of NF-κB in directing the branching morphogenesis of the developing chick lung, a process which relies on epithelial–mesenchymal communication. High level expression of relA was found in the mesenchyme surrounding the nonbranching structures of the lung but was not detected either in the mesenchyme surrounding the branching structures of the distal lung or in the developing lung epithelium. Specific inhibition of mesenchymal NF-κB in lung cultures resulted in increased epithelial budding. Conversely, expression of a trans-dominant activator of NF-κB in the lung mesenchyme repressed budding. Ectopic expression of RelA was sufficient to inhibit the ability of the distal mesenchyme to induce epithelial bud formation. Cellular proliferation in the mesenchyme was inhibited by hyperactivation of NF-κB in the mesenchyme of lung cultures. Interestingly, increased NF-κB activity in the mesenchyme also decreased the proliferation of the associated epithelium, while inhibition of NF-κB activity increased cellular proliferation in lung cultures. Expression patterns of several genes which are known to influence lung branching morphogenesis were altered in response to changes in mesenchymal NF-κB activity, including fgf10, bmp-4, and tgf-β1. Thus NF-κB represents the first transcription factor reported to function within the lung mesenchyme to limit growth and branching of the adjacent epithelium.