Members of the transforming growth factor  (TGF-) family of polypeptides have been implicated in morphogenesis and differentiation in numerous tissues, including the lung. In order to further define effects of TGF- signaling in lung morphogenesis, a constitutively active form of TGF-1 was expressed in respiratory epithelial cells of the fetal mouse lung in vivo. Expression of TGF-1 arrested lung morphogenesis in the pseudoglandular stage of development, inhibiting synthesis of differentiation-dependent proteins, SP-B, SP-C, and CCSP, and maintaining embryonic patterns of staining for thyroid transcription factor-1 (TTF-1) and hepatocyte nuclear factor-3 (HNF-3). The pulmonary mesenchyme was thickened and vascular density was increased by TGF-1. TGF-1 decreased expression of vascular endothelial growth factor-A (VEGF-A) mRNA and protein, and the abundance of Flk-1 mRNA in the lung mesenchyme. Distribution of platelet-endothelial cell adhesion molecule (PECAM)-1, a marker of pulmonary blood vessels, was altered, and ultrastructural studies demonstrated that TGF-1 inhibited vascular development in the fetal lung. TGF-1 perturbed both epithelial cell differentiation and formation of the pulmonary vasculature, supporting the concept that precise control of signaling via the TGF- receptor pathway is critical for normal lung morphogenesis.