Alveolar formation is coupled to the spatiotemporally regulated differentiation of alveolar myofibroblasts (AMYFs), which contribute to the morphological changes of interalveolar walls. Although the Ras-ERK signaling pathway is one of the key regulators for alveolar formation in developing lungs, the intrinsic molecular and cellular mechanisms underlying its role remain largely unknown. By analyzing the Ras-ERK signaling pathway during postnatal development of lungs, we have identified a critical role of DA-Raf1 (DA-Raf)-a dominant-negative antagonist for the Ras-ERK signaling pathway-in alveolar formation. DA-Raf-deficient mice displayed alveolar dysgenesis as a result of the blockade of AMYF differentiation. DA-Raf is predominantly expressed in type 2 alveolar epithelial cells (AEC2s) in developing lungs, and DA-Raf-dependent MEK1/2 inhibition in AEC2s suppresses expression of tissue inhibitor of matalloprotienase 4 (TIMP4), which prevents a subsequent proteolytic cascade matrix metalloproteinase (MMP)14-MMP2. Furthermore, MMP14-MMP2 proteolytic cascade regulates AMYF differentiation and alveolar formation. Therefore, DA-Raf-dependent inhibition of the Ras-ERK signaling pathway in AEC2s is required for alveolar formation via triggering MMP2 activation followed by AMYF differentiation. These findings reveal a pivotal role of the Ras-ERK signaling pathway in the dynamic regulation of alveolar development.