The transcription factor GATA6 is expressed in the fetal pulmonary epithelium of the developing mouse lung and loss of function studies strongly suggested that it is required for proper branching morphogenesis and epithelial differentiation. We have further investigated the role of GATA6 in this process by utilizing a pulmonary epithelium specific promoter to maintain high levels of GATA6 protein during fetal lung development. Transgenic mice expressing Gata6 cDNA under the control of the human SurfactantProtein-C (SP-C) promoter were generated and their lungs were analyzed during fetal stages. Transgenic lungs exhibit branching defects as early as embryonic day (E) 14.5 and molecular analysis just before birth (E18.5) shows a lack of distal epithelium differentiation whereas proximal epithelium is unaffected. Electron microscopic analysis and glycogen staining confirm the lack of differentiation to mature Type II cells. Thus, elevated levels of GATA6 protein affect early lung development and in analogy to other GATA factors in other tissues, GATA6 also plays a crucial role in the terminal differentiation in this case of the distal pulmonary epithelium.