We used whole lung cultures as a model to study blood vessel formation in vitro and to examine the role that epithelial‐mesenchymal interactions play during embryonic pulmonary vascular development. Mouse lungs were isolated at embryonic day 11.5 (E11.5) and cultured for up to 4 days prior to blood vessel analysis. Platelet endothelial cell adhesion molecule‐1 (PECAM/CD31) and thrombomodulin (TM/CD141) immunolocalization demonstrate that vascular development occurs in lung cultures. The vascular structures identified in lung cultures first appear as a loosely associated plexus of capillary‐like structures that with time surround the airways. To investigate the potential role of vascular endothelial cell growth factor (VEGF) during pulmonary neovascularization, we immunolocalized VEGF in embryonic lungs. Our data demonstrate that VEGF is uniformly present in the airway epithelium and the subepithelial matrix of E11.5 lungs. At later time points, E13.5 and E15.5, VEGF is no longer detected in the proximal airways, but is restricted to the branching tips of airways in the distal lung. RT‐PCR analysis reveals that VEGF164 is the predominant isoform expressed in lung cultures. Grafting heparin‐bound VEGF164 beads onto lung explants locally stimulates a marked neovascular response within 48 hr in culture. Semi‐quantitative RT‐PCR reveals an 18% increase in PECAM mRNA in VEGF164‐treated whole lung cultures as compared with untreated cultures. The restricted temporal and spatial expression of VEGF suggests that matrix‐associated VEGF links airway branching with blood vessel formation by stimulating neovascularization at the leading edge of branching airways. © 2000 Wiley‐Liss, Inc.