Notch3 is a transmembrane receptor and a member of the Notch signaling pathway essential for cellular differentiation in a variety of developing tissues in both invertebrates and vertebrates. Emerging data support the role of the Notch signaling pathway in tumorigenesis. We have previously demonstrated the expression of Notch3 in a subset of lung adenocarcinomas. To further elucidate the role of Notch3 in development of lung cancer, we established a transgenic mouse model in which the intracellular domain of Notch3 is expressed using the surfactant protein C promoter/enhancer. Constitutive expression of Notch3 in the peripheral epithelium in the developing lung resulted in altered lung morphology and delayed development, leading to perinatal lethality in these transgenic mice. Cell-specific markers and electron microscopy examination showed that the majority of the epithelial cells are undifferentiated, with some maturation of type II pneumocytes. No type I alveolar cells were evident. Metaplasia of undifferentiated cells in the terminal airways was also observed. Although the mice did not live long enough to assess tumor development, these findings demonstrate that ectopic expression of Notch3 in airway epithelium potentially contributes to the multistep evolution of lung cancer through the inhibition of terminal differentiation.