A major unsolved problem in developmental biology is to determine when and how time- and position-restricted instructions are signaled and received during secondary embryonic inductions such as branching morphogenesis. The mouse embryonic lung rudiment was used to test the hypothesis that endogenous peptide growth factors, specifically epidermal growth factor (EGF), serve as instructive epigenetic signals for morphogenesis. The presence of EGF precursor mRNA transcripts was detected using the reverse-transcriptase-coupled polymerase chain reaction both in E11-E17-day mouse embryo lung tissues in vivo and in E11-day lung cultured for up to 7 days in vitro under chemically defined, serum-free conditions. Immunolocalization identified a position-restricted distribution of EGF in and around the primitive airways both during in vivo lung morphogenesis and in culture. EGF receptors (EGFR) coimmunolocalized with EGF in the primitive airways. Addition of exogenous EGF to lungs in culture resulted in significant concentration-dependent stimulation of branching morphogenesis, DNA, RNA, and protein content, and in [3H]thymidine incorporation into DNA. Conversely, the addition of tyrphostin (specific EGF receptor kinase antagonist) to lungs in culture resulted in concentration-dependent inhibition of branching morphogenesis, DNA, RNA, and protein content, and in [3H]thymidine incorporation into DNA without apparent cytotoxicity. The inhibition of the EGF signal by tyrphostin was confirmed by immunoprecipitation of tyrosine phosphoproteins. We conclude that early mouse embryo lungs express EGF transcripts and corresponding EGF peptides in a specific position-restricted distribution which coimmunolocalizes with EGFR in the primitive airways, while stimulatory and inhibitory studies indicate a functional role for the transduced EGF signal in the epigenetic regulation of lung branching morphogenesis. We speculate that the peptide growth factor EGF serves a function in secondary embryonic morphogenetic inductions, which may be modulated by interaction with other growth factors.