The transcriptional regulator Yap plays a key role in lung development. Previous research has shown that Yap activity is regulated by the Hippo kinases Mst and Lats, which promote the transfer of YAP from the nucleus to the cytoplasm. However, the significance of Yap localisation to these compartments for lung development has remained elusive. Now, Wellington Cardoso and co-workers report that Yap nucleocytoplasmic shuttling is crucial for epithelial integrity and differentiation of developing airways. They show that nuclear Yap is required selectively in distal epithelial progenitors to initiate airway morphogenesis. Furthermore, they report that the nuclear functions of Yap are sufficient for normal lung development, as expression of a Yap allele that constitutively localises to the nucleus rescues Yap deletion. Later, when distal buds form saccules, wild-type Yap relocalises to the cytoplasm but remains nuclear in a subpopulation destined to become alveolar type 1 cells. Nevertheless, morphogenesis and differentiation of the distal lung are largely unaffected if Yap is forcibly retained in the nucleus. On the contrary, high levels of nuclear Yap inhibit differentiation in the airway epithelium and preclude the expression of the airway progenitor marker Sox2, suggesting a loss of airway progenitor identity. Together, these results highlight the importance of Yap nucleocytoplasmic shuttling for the correct development of the lung epithelium.