Lung epithelial and mesenchymal cells are separated by a basement membrane. At late fetal gestation, this basement membrane in fenestrated, allowing epithelial cytoplasmic extensions to reach in close proximity of the interstitial fibroblast. The enzymes responsible for this focal basement membrane remodelling, and their cellular origin, remains to be defined. Basement membrane remodelling generally involves a special class of matrix-degrading enzymes, called metalloproteinases. Herein, we report that fetal lung cells originating from both tissue layers, mesoderm and endoderm, express the metalloproteinase genes, MMP-1 or interstitial collagenase, and MMP-3 or stromelysin. The inhibitor of metalloproteinases, TIMP-1, is mainly expressed in fetal lung fibroblasts. During late fetal development, MMP-1 mRNA expression in both cell types increases close to term (day 21, term = 22 days), while that of stromelysin and TIMP-1 remain constant. Both fibroblasts and epithelial cells express fibronectin (FN) mRNA. The expression of the FN gene in epithelial cells decreases slightly at the canalicular stage of lung development (days 19-20), whereas FN expression in fibroblasts is not changed with advancing gestation. Procollagen alpha 1 (I) mRNA is predominantly detected in fibroblasts whereas message for laminin B1 chain is primarily found in epithelial cells. Expression of procollagen alpha 1 (I) mRNA decreases in fibroblasts during the canalicular stage of fetal lung development compared to the pseudoglandular stage (day 18) but increases thereafter at the saccular stage (day 21) of development. Laminin B1 expression in epithelial cells declines with advancing gestation. These data are consistent with a process of basement membrane thinning during the canalicular stage, followed by metalloproteinase-mediated penetration. Further, a progressive reduction in laminin expression is consistent with progressive epithelial differentiation.