Classical experiments in embryology have shown that normal growth, morphogenetic patterning, and cellular differentiation in the developing lung depend on interactive signaling between the endodermal epithelium and mesenchyme derived from splanchnic mesoderm. These interactions are mediated by a myriad of diffusible factors that are precisely regulated in their temporal and spatial expression. In this review we first describe factors regulating formation of the embryonic foregut. We then discuss the experiments demonstrating the importance of tissue interactions in lung patterning and differentiation. Finally, we detail the roles that a few key signaling systems-fibroblast growth factors and their receptors, sonic hedgehog and Gli genes, Wnt genes and beta-catenin, and BMP4-play as mediators of epithelial-mesenchymal interactions in the developing lung.