Branching morphogenesis in the lung serves as a model for the complex patterning that is reiterated in multiple organs throughout development. β-catenin and Wnt signaling mediate critical functions in cell fate specification and differentiation, but specific functions during branching morphogenesis have remained unclear. Here, we show that Wnt/β-catenin signaling regulates proximal–distal differentiation of airway epithelium. Inhibition of Wnt/β-catenin signaling, either by expression of Dkk1 or by tissue-specific deletion of β-catenin, results in disruption of distal airway development and expansion of proximal airways. Wnt/β-catenin functions upstream of BMP4, FGF signaling, and N-myc. Moreover, we show that β-catenin and LEF/TCF activate the promoters of BMP4 and N-myc. Thus, Wnt/β-catenin signaling is a critical upstream regulator of proximal–distal patterning in the lung, in part, through regulation of N-myc, BMP4, and FGF signaling.