Adhesion of cells to components of the extracellular matrix has been shown to be critical in normal lung development, particularly during the pseudoglandular stage, when conducting airways are forming through a process of branching morphogenesis. Expression of factors that inhibit cellular adhesion might also modulate branching morphogenesis. SPARC is a secreted glycoprotein that exhibits antiadhesive effects on cultured cells and is widely expressed in embryonic tissues. In this report, we examine the distribution of SPARC in fetal rat lung during development and its effect on the process of branching morphogenesis. Immunohistochemistry and in situ hybridization studies revealed that SPARC was present in the airway epithelial cells during the pseudoglandular stage of lung development, and in blood vessels and smooth muscle cells associated with airways during the canalicular and saccular stages of development. We used an in vitro model of rat lung branching morphogenesis to examine airway branching in the presence of: a) a neutralizing anti-SPARC antibody; or b) a synthetic peptide from a region of SPARC that, like the native protein, perturbs cell adhesion and diminishes the synthesis of fibronectin and thrombospondin 1. Lungs cultured in the presence of either reagent exhibited diminished branching and an abnormal morphology that was characterized in part by dilated airways. These findings implicate SPARC in the development of the airways.