There is extensive epidemiologic and experimental evidence from both animal and human studies that demonstrates detrimental long-term pulmonary outcomes in the offspring of mothers who smoke during pregnancy. However, the molecular mechanisms underlying these associations are not understood. Therefore, it is not surprising that that there is no effective intervention to prevent the damaging effects of perinatal smoke exposure. Using a biologic model of lung development, homeostasis, and repair, we have determined that in utero nicotine exposure disrupts specific molecular paracrine communications between epithelium and interstitium that are driven by parathyroid hormone-related protein and peroxisome proliferator-activated receptor (PPAR)gamma, resulting in transdifferentiation of lung lipofibroblasts to myofibroblasts, i.e., the conversion of the lipofibroblast phenotype to a cell type that is not conducive to alveolar homeostasis, and is the cellular hallmark of chronic lung disease, including asthma. Furthermore, we have shown that by molecularly targeting PPAR gamma expression, nicotine-induced lung injury can not only be significantly averted, it can also be reverted. The concept outlined by us differs from the traditional paradigm of teratogenic and toxicological effects of tobacco smoke that has been proposed in the past. We have argued that since nicotine alters the normal homeostatic epithelial-mesenchymal paracrine signaling in the developing alveolus, rather than causing totally disruptive structural changes, it offers a unique opportunity to prevent, halt, and/or reverse this process through targeted molecular manipulations.