The developing distal lung epithelium displays an evolving liquid transport phenotype, reflecting a changing and dynamic balance between Cl- ion secretion and Na+ ion absorption, which in turn reflects changing functional requirements. Thus in the fetus, Cl--driven liquid secretion predominates throughout gestation and generates a distending pressure to stretch the lung and stimulate growth. Increasing Na+ absorptive capacity develops toward term, anticipating the switch to an absorptive phenotype at birth and beyond. There is some empirical evidence of ligand-gated regulation of Cl- transport and of regulation via changes in the driving force for Cl- secretion. Epinephrine, O2, glucocorticoid, and thyroid hormones interact to stimulate Na+ absorption by increasing Na+ pump activity and apical Na+ conductance (GNa+) to bring about the switch from net secretion to net absorption as lung liquid is cleared from the lung at birth. Postnatally, the lung lumen contains a small Cl--based liquid secretion that generates a surface liquid layer, but the lung retains a large absorptive capacity to prevent alveolar flooding and clear edema fluid. This review explores the mechanisms underlying the functional development of the lung epithelium and draws upon evidence from classic integrative physiological studies combined with molecular physiology approaches.