There is abundant epidemiological data linking prenatal environmental tobacco smoke with childhood asthma and wheezing, but the underlying molecular and physiological mechanisms that occur in utero to explain this link remain unelucidated. Several studies suggest that nicotine, which traverses the placenta, is a causative agent. Therefore, we studied the effects of nicotine on lung branching morphogenesis using embryonic murine lung explants. We found that the expression of alpha(7) nicotinic acetylcholine receptors, which mediate many of the biological effects of nicotine, is highest in pseudoglandular stage lungs compared with lungs at later stages. We then studied the effects of nicotine in the explant model and found that nicotine stimulated lung branching in a dose-dependent fashion. alpha-Bungarotoxin, an antagonist of alpha(7) nicotinic acetylcholine receptors, blocked the stimulatory effect of nicotine, whereas GTS-21, a specific agonist, stimulated branching, thereby mimicking the effects of nicotine. Explants deficient in alpha(7) nicotinic acetylcholine receptors did not respond to nicotine. Nicotine also stimulated the growth of the explant. Altogether, these studies suggest that nicotine stimulates lung branching morphogenesis through alpha(7) nicotinic acetylcholine receptors and may contribute to dysanaptic lung growth, which in turn may predispose the host to airway disease in the postnatal period.