The requirement for precise geometric organization of endothelial cells and epithelial cells makes the gas-exchange region of the lung especially vulnerable to the adverse consequences of toxic products released from inflammatory cells. However, as a filter for large volumes of atmospheric gas, the lung is continually exposed to microorganisms and other toxic insults that require robust inflammatory defense. Enhanced production of extracellular matrix proteins is one important mechanism for restricting tissue damage, but excessive matrix production also has serious adverse effects on gas exchange. The amazing ability of the lung to recover from a barrage of environmental insults depends on precisely regulating both inflammation and extracellular matrix production in space and time. Below I review some of the evidence implicating members of the transforming growth factor beta family as critical mediators of this delicate dance and describe examples of how disruption of this balance by alterations in the magnitude of spatially restricted transforming growth factor beta activation can contribute to pathologic consequences of alveolar and airway injury and inflammation.