Development of the mouse lung initiates on day 9.5postcoitum from the laryngotracheal groove and involves mesenchymal-epithelial interactions, in particular, those between the splanchnic mesoderm and epithelial cells (derived from foregut endoderm) that induce cellular proliferation, migration, and differentiation, resulting in branching morphogenesis. This developmental process mediates formation of the pulmonary bronchiole tree and integrates a terminal alveolar region with an extensive endothelial capillary bed, which facilitates efficient gas exchange with the circulatory system. The major function of the mesenchymal-epithelial signaling is to potentiate the activity or expression of cell type-specific transcription factors in the developing lung, which, in turn, cooperatively bind to distinct promoter regions and activate target gene expression. In this review, we focus on the role of transcription factors in lung morphogenesis and the maintenance of differentiated gene expression. These lung transcription factors include forkhead box A2 [also known as hepatocyte nuclear factor (HNF)-3β], HNF-3/forkhead homolog (HFH)-8 [also known as FoxF1 or forkhead-related activator-1], HNF-3/forkhead homolog-4 (also known as FoxJ1), thyroid transcription factor-1 (Nkx2.1), and homeodomain box A5 transcription factors, the zinc finger Gli (mouse homologs of the Drosophila cubitus interruptus) and GATA transcription factors, and the basic helix-loop-helix Pod1 transcription factor. We summarize the phenotypes of transgenic and knockout mouse models, which define important functions of these transcription factors in cellular differentiation and lung branching morphogenesis.