In mammalian lungs, airway smooth muscle cells (airway SMCs) are present in the proximal lung adjacent to bronchi and bronchioles, but are absent in the distal lung adjacent to terminal sacs that expand during gas exchange. Evidence suggests that this distribution is essential for the formation of a functional respiratory tree, but the underlying genetic mechanism has not been elucidated. In this study, we test the hypothesis that fibroblast growth factor 9 (Fgf9) signaling is essential to restrict SMC differentiation to the proximal lung. We show that loss of Fgf9 or conditional inactivation of Fgf receptors (Fgfr) 1 and 2 in mouse lung mesenchyme results in ectopic SMCs. Our data support a model where FGF9 maintains a SMC progenitor population by suppressing differentiation and promoting growth. This model also represents our findings on the genetic relationship between FGF9 and sonic hedgehog (SHH) in the establishment of airway SMC pattern. Developmental Dynamics 238:123–137, 2009. © 2008 Wiley-Liss, Inc.