Foxa1 and Foxa2 are closely related family members of the Foxa group of transcription factors that are coexpressed in subsets of respiratory epithelial cells throughout lung morphogenesis. Shared patterns of expression, conservation of DNA binding, and transcriptional activation domains indicate that they may serve complementary functions in the regulation of gene expression during lung morphogenesis. Whereas branching morphogenesis of the fetal lung occurs normally in the Foxa2Delta/Delta and Foxa1-/- mice, deletion of both Foxa1 and Foxa2 (in Foxa2Delta/Delta, Foxa1-/- mice) inhibited cell proliferation, epithelial cell differentiation, and branching. Dilation of terminal lung tubules and decreased branching were observed as early as embryonic day 12.5. Foxa1 and Foxa2 regulated Shh (sonic hedgehog) and Shh-dependent genes in the respiratory epithelial cells that influenced the expression of genes in the pulmonary mesenchyme that are required for branching morphogenesis. Epithelial cell differentiation, as indicated by lack of expression of surfactant protein B, surfactant protein C, the Clara cell secretory protein, and Foxj1, was inhibited. Foxa family members regulate signaling and transcriptional programs required for morphogenesis and cell differentiation during formation of the lung.