The miR-17-92 locus encodes a cluster of 7 microRNAs transcribed as a single primary transcript. It can accelerate c-Myc induced B cell lymphoma development and is highly expressed in many tumors, including lung tumors. However, the role of miR-17-92 in development has not been well studied. From analysis of microRNAs during lung development, expression of the miR-17-92 cluster is high at early stages, but declines as development proceeds. We used the mouse surfactant protein C (Sftpc) promoter to over-express the cluster in embryonic lung epithelium. Transgenic lungs have a very abnormal lethal phenotype. They contain numerous proliferative epithelial cells that retain high levels of Sox9, a marker of distal progenitors. The differentiation of proximal epithelial cells was also inhibited. Furthermore, a significant increase in the number of neuroendocrine cell clusters was observed in the lungs of dead transgenic pups. We identify a tumor suppressor, Rbl2 which belongs to the Rb family, as a new target for miR-17-5p. Together, these studies suggest that mir-17-92 normally promotes the high proliferation and undifferentiated phenotype of lung epithelial progenitor cells.