Glucocorticoids provide important signals for maturation of the fetal lung and antenatal glucocorticoids are used to reduce the respiratory insufficiency suffered by preterm infants. To further understand the role of glucocorticoids in fetal lung maturation, we have analyzed mice with a targeted null mutation for the glucocorticoid receptor (GR) gene, which severely retards lung development. The lungs of fetal GR-null mice have increased lung weight and DNA content, are condensed and hypercellular, with reduced septal thinning leading to a 6-fold increase in the airway to capillary diffusion distance. In fetal GR-null mice, mRNA levels of the type II epithelial cell surfactant protein genes A and C were reduced by approximately 50%. Analysis of epithelial cell types by electron microscopy revealed that the proportions of type II cells were increased by approximately 30%, whereas the proportions of type-I cells were markedly reduced (by approximately 50%). Similarly, we found a 50% reduction in mRNA levels for T1alpha and aquaporin-5, two type I cell-specific markers, and a 20% reduction in aquaporin-1 mRNA levels. This demonstrates that during murine embryonic development, receptor-mediated glucocorticoid signaling facilitates the differentiation of epithelial cells into type I cells, but is not obligatory for type II cell differentiation.