During early respiratory system development, the foregut endoderm gives rise to the tracheal and lung cell progenitors. Through branching morphogenesis, and in coordination with vascular development, a tree-like structure of epithelial tubules forms and differentiates to produce the airways and alveoli. Recent studies have implicated the fibroblast growth factor, sonic hedgehog, bone morphogenetic protein, retinoic acid and Wnt signaling pathways, and various transcription factors in regulating the initial stages of lung development. However, the precise roles of these molecules and how they interact in the developing lung is subject to debate. Here, we review early stages in lung development and highlight questions and controversies regarding their molecular regulation.