The pulmonary epithelium is a derivative of the foregut endoderm. Proliferation and differentiation of the primitive pulmonary epithelium result in an array of epithelial cell phenotypes that determine lung function and the response of the lung to injury, infection, or neoplastic transformation. The establishment of a cell phenotype requires the presence of transcription factors that activate or repress expression of specific genes. Members of the forkhead family of transcription factors, in particular HNF-3 alpha, HNF-3 beta, HFH-4; the homeodomain protein TTF-1; and N-myc, are all expressed in the developing pulmonary epithelium and may play important regulatory roles during development. Two genes specific to the pulmonary epithelium, the surfactant protein A and Clara cell secretory protein genes, serve as useful paradigms for understanding the mechanisms regulating cell-specific gene expression in the pulmonary epithelium.