The regulation of DNA synthesis in 19 day rat fetal lung epithelial (alveolar type II) and mesenchymal (fibroblast) cells by protein growth factors has been studied. In each case a single growth factor is capable of stimulating 3H-thymidine incorporation into DNA: platelet-derived growth factor in the case of the alveolar type II cell and epidermal growth factor in the case of the fetal lung fibroblast. We hypothesize that these results indicate that the type II cell endogenously produces progression activities (i.e., epidermal growth factor-like and somatomedin-like activity) while the fibroblast produces competence (i.e., platelet-derived growth factor-like) and progression (i.e., somatomedin-like activity). The latter is in keeping with previous observations with skin fibroblasts. To test the above hypothesis, the effect of fetal lung fibroblast-derived conditioned media upon the growth of fetal alveolar type II cells has been determined. The results indicate that, indeed, such media contain competence activity for this cell type. The mitogenic activity was further characterized as heat-sensitive, trypsin-sensitive, and has an apparent molecular weight of 30,000 Daltons. It is not synthesized by 19 day fetal liver, kidney or skin fibroblasts and its synthesis is higher in lung fibroblasts isolated from 19 day fetuses as compared to those isolated on day 16 or day 22.