The tall epithelium of the developing chick embryo lung is converted to a squamous one, which participates in formation of the thin blood–gas barrier. We show that this conversion occurred through processes resembling exocrine secretion. Initially, cells formed intraluminal protrusions (aposomes), and then transcellular double membranes were established. Gaps between the membranes opened, thus, severing the aposome from the cell. Alternatively, aposomes were squeezed out by adjacent cells or were spontaneously constricted and extruded. As a third mechanism, formation and fusion of severed vesicles or vacuoles below the aposome and their fusion with the apicolateral plasma membrane resulted in severing of the aposome. The atria started to form by progressive epithelial attenuation and subsequent invasion of the surrounding mesenchyme at regions delineated by subepithelial α-smooth muscle actin–positive cells. Further epithelial attenuation was achieved by vacuolation; rupture of such vacuoles with resultant numerous microfolds and microvilli, which were abscised to accomplish a smooth squamous epithelium just before hatching. Developmental Dynamics 235:68–81, 2006. © 2005 Wiley-Liss, Inc.