Mammalian lung develops as an evagination of ventral gut endoderm into the underlying mesenchyme. Iterative epithelial branching, regulated by the surrounding mesenchyme, generates an elaborate network of airways from the initial lung bud. Fibroblast growth factors (FGFs) often mediate epithelial-mesenchymal interactions and mesenchymal Fgf10 is essential for epithelial branching in the developing lung. However, no FGF has been shown to regulate lung mesenchyme. In embryonic lung, Fgf9 is detected in airway epithelium and visceral pleura at E10.5, but is restricted to the pleura by E12.5. We report that mice homozygous for a targeted disruption of Fgf9 exhibit lung hypoplasia and early postnatal death. Fgf9^−/− lungs exhibit reduced mesenchyme and decreased branching of airways, but show significant distal airspace formation and pneumocyte differentiation. Our results suggest that Fgf9 affects lung size by stimulating mesenchymal proliferation. The reduction in the amount of mesenchyme in Fgf9^−/− lungs limits expression of mesenchymal Fgf10. We suggest a model whereby FGF9 signaling from the epithelium and reciprocal FGF10 signaling from the mesenchyme coordinately regulate epithelial airway branching and organ size during lung embryogenesis.