Members of the Dickkopf (Dkk) family of secreted proteins are potent inhibitors of Wnt/beta-catenin signaling. In this study we show that Dkk1, -2, and -3 are expressed distally in the epithelium, while Kremen1, the needed co-receptor, is expressed throughout the epithelium of the developing lung. Using TOPGAL mice [DasGupta, R., Fuchs, E., 1999. Multiple roles for activated LEF/TCF transcription complexes during hair follicle development and differentiation. Development 126, 4557-4568] to monitor the Wnt pathway, we show that canonical Wnt signaling is dynamic in the developing lung and is active throughout the epithelium and in the proximal smooth muscle cells (SMC) until E12.5. However, from E13.5 onwards, TOPGAL activity is absent in the SMC and is markedly reduced in the distal epithelium coinciding with the onset of Dkk-1 expression in the distal epithelium. To determine the role of Wnt signaling in early lung development, E11.5 organ cultures were treated with recombinant DKK1. Treated lungs display impaired branching, characterized by failed cleft formation and enlarged terminal buds, and show decreased alpha-smooth muscle actin (alpha-SMA) expression as well as defects in the formation of the pulmonary vasculature. These defects coincide with a pattern of decreased fibronectin (FN) deposition. DKK1-induced morphogenetic defects can be mimicked by inhibition of FN and overcome by addition of exogenous FN, suggesting an involvement of FN in Wnt-regulated morphogenetic processes.