The epithelial sodium channel (ENaC) is essential for sodium homoeostasis in many epithelia. ENaC activity is required for lung fluid clearance in newborn animals and for maintenance of blood volume and blood pressure in adults. In vitro studies show that the ubiquitin ligase Nedd4-2 ubiquitinates ENaC to regulate its cell surface expression. Here we show that knockout of Nedd4-2 in mice leads to increased ENaC expression and activity in embryonic lung. This increased ENaC activity is the likely reason for premature fetal lung fluid clearance in Nedd4-2^−/− animals, resulting in a failure to inflate lungs and perinatal lethality. A small percentage of Nedd4-2^−/− animals survive up to 22 days, and these animals also show increased ENaC expression and develop lethal sterile inflammation of the lung. Thus, we provide critical in vivo evidence that Nedd4-2 is essential for correct regulation of ENaC expression, fetal and postnatal lung function and animal survival.