The mammalian lung develops through branching morphogenesis which is controlled by growth factors, hormones, and extracellular matrix proteins. We have evaluated the role of EGF-receptor signaling in lung morphogenesis by analyzing the developmental phenotype of lungs in mice with an inactivated the EGF-receptor gene both in vivo and in organ culture. Neonatal EGF-receptor-deficient mice often show evidence of lung immaturity which can result in visible respiratory distress. The lungs of these mutant mice had impaired branching and deficient alveolization and septation, resulting in a 50% reduction in alveolar volume and, thus, a markedly reduced surface for gas exchange. The EGF-receptor inactivation also resulted in type II pneumocyte immaturity, which was apparent from their increased glycogen content and a reduced number of lamellar bodies. The defective branching was already evident at Day 12 of embryonic development. When explants of embryonic lungs from Day 12 embryos were cultured under defined conditions, the branching defect in EGF-receptor-deficient lungs was even more pronounced, with only half as many terminal buds as normal lungs. EGF treatment stimulated the expression of surfactant protein C and thyroid transcription factor-1 in cultured normal lungs, but not in EGF-receptor-deficient lungs, suggesting that EGF-receptor signaling regulates the expression of these marker genes during type II pneumocyte maturation. Taken together, our data indicate that signal transduction through the EGF receptor plays a major role in lung development and that its inactivation leads to a respiratory distress-like syndrome.