Development of the pulmonary system is essential for terrestrial life. The molecular pathways that regulate this complex process are beginning to be defined, and such knowledge is critical to our understanding of congenital and acquired lung diseases. A recent workshop was convened by the National Heart, Lung, and Blood Institute to discuss the developmental principles that regulate the formation of the pulmonary system. Emerging evidence suggests that key developmental pathways not only regulate proper formation of the pulmonary system but are also reactivated upon postnatal injury and repair and in the pathogenesis of human lung diseases. Molecular understanding of early lung development has also led to new advances in areas such as generation of lung epithelium from pluripotent stem cells. The workshop was organized into four different topics, including early lung cell fate and morphogenesis, mechanisms of lung cell differentiation, tissue interactions in lung development, and environmental impact on early lung development. Critical points were raised, including the importance of epigenetic regulation of lung gene expression, the dearth of knowledge on important mesenchymal lineages within the lung, and the interaction between the developing pulmonary and cardiovascular system. This manuscript describes the summary of the discussion along with general recommendations to overcome the gaps in knowledge in lung developmental biology.