Lung morphogenesis and differentiation require interaction between the epithelium and mesenchyme, which is mediated by diffusible molecules such as fibroblast growth factors (FGFs), bone morphogenetic protein 4 (BMP4), and Shh. We have used mesenchyme-free culture to study the effects of these molecules on lung epithelial differentiation. We have tested the individual abilities of FGF1, FGF2, FGF7, FGF9, FGF10, and FGF18, as well as BMP4 and Shh to promote growth and specify distal lung differentiation in mouse tracheal epithelium. The different FGFs exhibited distinct abilities to induce epithelial growth and the expression of the distal lung epithelial marker, surfactant protein C (SP-C), although all FGFs were able to induce expression of BMP4. Tracheal epithelium treated with FGF10 showed little growth and failed to express SP-C as measured by whole-mount in situ hybridization and quantitative real-time polymerase chain reaction. FGF1 treatment resulted in the strongest induction of SP-C. Treatment with BMP4 inhibited epithelial growth and differentiation and antagonized the stimulatory effects of FGF1. In contrast, inhibition of endogenous BMP4 signaling with Noggin protein did not inhibit growth or expression of SP-C but did increase the expression of the proximal lung markers CCSP and HFH4. Expression of Shh was not affected by any of the conditions tested. These results suggest that BMP4 does not signal epithelial cells to adopt a distal fate but may regulate the expansion of proximal epithelial cells in the lung. © 2002 Wiley-Liss, Inc.