Lung morphogenesis is a highly orchestrated process beginning with the appearance of lung buds on approximately embryonic day 9.5 in the mouse. Endodermally derived epithelial cells of the primitive lung buds undergo branching morphogenesis to generate the tree-like network of epithelial-lined tubules. The pulmonary vasculature develops in close proximity to epithelial progenitor cells in a process that is regulated by interactions between the developing epithelium and underlying mesenchyme. Studies in transgenic and knockout mouse models demonstrate that normal lung morphogenesis requires coordinated interactions between cells lining the tubules, which end in peripheral saccules, juxtaposed to an extensive network of capillaries. Multiple growth factors, microRNAs, transcription factors, and their associated signaling cascades regulate cellular proliferation, migration, survival, and differentiation during formation of the peripheral lung. Dysregulation of signaling events caused by gene mutations, teratogens, or premature birth causes severe congenital and acquired lung diseases in which normal alveolar architecture and the pulmonary capillary network are disrupted. Herein, we review scientific progress regarding signaling and transcriptional mechanisms regulating the development of pulmonary vasculature during lung morphogenesis.