Tenascin-C (TN-C) is a mesenchyme-derived extracellular matrix (ECM) glycoprotein required for fetal lung branching morphogenesis. Given that the low oxygen (O2) environment of the fetus is also essential for normal lung branching morphogenesis, we determined whether fetal O2 tension supports this process by promoting TN-C expression. Initial studies showed that 15-day fetal rat lung explants cultured for 2 days at 3% O2 not only branched well, but they also expressed higher levels of TN-C when compared to lungs maintained at 21% O2, which branched poorly. Antisense oligonucleotide studies demonstrated that TN-C produced in response to 3% O2 was essential for lung branching morphogenesis. As well, exogenous TN-C protein was shown to promote branching of lung epithelial rudiments cultured at 21% O2. Because ECM-degrading proteinases are capable of catabolizing TN-C protein, we reasoned that 3% O2 might promote TN-C deposition by limiting the activity of these enzymes within the fetal lung. Consistent with this idea, gelatin zymography showed that the activity of a 72-kDa gelatinase, identified as matrix metalloproteinase-2 (MMP-2), was lower at 3% O2 vs. 21% O2. Furthermore, pharmacologic inhibition of MMP-2 activity in fetal lung explants cultured at 21% O2 resulted in increased TN-C deposition within the mesenchyme, as well as enhanced branching morphogenesis. Collectively, these studies indicate that fetal O2 tension promotes TN-C–dependent lung epithelial branching morphogenesis by limiting the proteolytic turnover of this ECM component within the adjacent mesenchyme. Developmental Dynamics 234:1–10, 2005. © 2005 Wiley-Liss, Inc.