The developing avian lung is formed mainly by branching morphogenesis, but there is also a unique cystic structure, the air sac, in the ventral region. It has been shown that mesenchymal tissue is responsible for the differential development of a cystic or branched structure, and that the transcription factor Hoxb may be involved in determining this regional difference. We have previously developed two scenarios for branch-cyst transition, both experimentally and theoretically: increased production or increased diffusion of FGF. The aim of the present study was to discover whether one of these scenarios actually operates in the ventral region of the chick lung. We found that the FGF10 level was lower while the diffusion of FGF10 was more rapid in the ventral lung, indicating that the second scenario is more plausible. There are two possibilities as to why the diffusion of FGF10 differs between the two regions: (1) diffusion is facilitated by the looser tissue organisation of the ventral lung mesenchyme; (2) stronger expression of heparan sulphate proteoglycan (HSPG) in the dorsal lung traps FGF and decreases the effective diffusion coefficient. Mathematical analysis showed that the dorsal-ventral difference in the amount of HSPG is not sufficient to generate the observed difference in pattern, indicating that both extracellular matrix and tissue architecture play a role in this system. These results suggest that the regional cystic-branched difference within the developing chick lung results from a difference in the rate of diffusion of morphogen between the ventral and dorsal regions due to differential levels of HSPG and a different mesenchymal structure.