Although the Wnt signaling pathway regulates inductive interactions between epithelial and mesenchymal cells, little is known of the role that this pathway plays during lung development. Wnt7b is expressed in the airway epithelium, suggesting a possible role for Wnt-mediated signaling in the regulation of lung development. To test this hypothesis, we have mutated Wnt7b in the germline of mice by replacement of the first exon with the lacZ-coding region. Wnt7b^lacZ–/– mice exhibit perinatal death due to respiratory failure. Defects in early mesenchymal proliferation leading to lung hypoplasia are observed in Wnt7b^lacZ–/– embryos. In addition, Wnt7b^lacZ–/– embryos and newborn mice exhibit severe defects in the smooth muscle component of the major pulmonary vessels. These defects lead to rupture of the major vessels and hemorrhage in the lungs after birth. These results demonstrate that Wnt7b signaling is required for proper lung mesenchymal growth and vascular development.