This review summarizes progress in the application of transgenic mouse technology to the study of lung development and disease. Since advances in molecular genetics have greatly facilitated the isolation of cDNA and genes, our ability to readily assess roles of both normal and mutated genes in transgenic mouse in vivo represents a major advance, bridging molecular biology and whole animal physiology. Strategies have been developed in which lung epithelial cell promoter elements are used to drive normal or mutated genes into specific subsets of respiratory epithelial cells in the lungs of developing and mature transgenic mice. These mice have been used to elucidate the cis-acting elements controlling lung epithelial cell gene expression, to discern the role of specific polypeptides in lung morphogenesis and tumorigenesis, and to create animal models of pulmonary disease. The ability to mutate genes at their precise chromosomal locations through gene targeting in embryonic stem cells has lead to the production of animal models of lung diseases such as cystic fibrosis. Both gene insertion and gene targeting create permanent mouse lines that pass the modified gene to their progeny, providing animals for the study of the pathogenesis and treatment of pulmonary disorders.