During mouse lung morphogenesis, the distal mesenchyme regulates the growth and branching of adjacent endoderm. We report here that fibroblast growth factor 10 (Fgf10) is expressed dynamically in the mesenchyme adjacent to the distal buds from the earliest stages of lung development. The temporal and spatial pattern of gene expression suggests that Fgf10 plays a role in directional outgrowth and possibly induction of epithelial buds, and that positive and negative regulators of Fgf10 are produced by the endoderm. In transgenic lungs overexpressing Shh in the endoderm, Fgf10 transcription is reduced, suggesting that high levels of SHH downregulate Fgf10. Addition of FGF10 to embryonic day 11.5 lung tissue (endoderm plus mesenchyme) in Matrigel or collagen gel culture elicits a cyst-like expansion of the endoderm after 24 hours. In Matrigel, but not collagen, this is followed by extensive budding after 48–60 hours. This response involves an increase in the rate of endodermal cell proliferation. The activity of FGF1, FGF7 and FGF10 was also tested directly on isolated endoderm in Matrigel culture. Under these conditions, FGF1 elicits immediate endodermal budding, while FGF7 and FGF10 initially induce expansion of the endoderm. However, within 24 hours, samples treated with FGF10 give rise to multiple buds, while FGF7-treated endoderm never progresses to bud formation, at all concentrations of factor tested. Although exogenous FGF1, FGF7 and FGF10 have overlapping activities in vitro, their in vivo expression patterns are quite distinct in relation to early branching events. We conclude that, during early lung development, localized sources of FGF10 in the mesoderm regulate endoderm proliferation and bud outgrowth.

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