Transgenic mice in which fibroblast growth factor (FGF)-10 was expressed in the lungs of fetal and postnatal mice were generated with a doxycycline-inducible system controlled by surfactant protein (SP) C or Clara cell secretory protein (CCSP) promoter elements. Expression of FGF-10 mRNA in the fetal lung caused adenomatous malformations, perturbed branching morphogenesis, and caused respiratory failure at birth. When expressed after birth, FGF-10 caused multifocal pulmonary tumors. FGF-10-induced tumors were highly differentiated papillary and lepidic pulmonary adenomas. Epithelial cells lining the tumors stained intensely for thyroid transcription factor (TTF)-1 and SP-C but not CCSP, indicating that FGF-10 enhanced differentiation of cells to a peripheral alveolar type II cell phenotype. Withdrawal from doxycycline caused rapid regression of the tumors associated with rapid loss of the differentiation markers TTF-1, SP-B, and proSP-C. FGF-10 disrupted lung morphogenesis and induced multifocal pulmonary tumors in vivo and caused reversible type II cell differentiation of the respiratory epithelium.