Over-expression of BMP ligands or inactivation of BMP receptors in the distal part of the developing lung leads to dramatic defects in alveolar development [14, 16, 18, 19] . Since eGFP expression was highly increased in lung parenchyma of the BRE-eGFP mice during the saccular and alveolar stages, the period during which functional alveoli are formed, we characterized the nature of the eGFP pos cells in this part of the developing lung. Tissue sections from different developmental stages were analyzed by co-staining for eGFP and pro-surfactant protein C (pro-SpC), a marker of type-II pneumocytes. As shown in figure 6 and Figure S2 , eGFP staining during the pseudoglandular stage was confined to endothelial cells and peri-bronchial smooth muscle cells of the proximal airways. Pro-SpC pos epithelial cells in the distal airways were uniformly eGFP neg at this developmental stage ( Figure S2 ).In contrast, starting at the canalicular stage (E17) and persisting until approximately P15, a population of eGFP pospro-SpC pos cells emerged in the distal lung compartments ( Figure 6A ).The SpC pos cells at this stage of development are thought to be immature type-II pneumocytes [55] . Morphometric analysis demonstrated that during the saccular and alveolar stages, approximately half of the pro-SpC pos alveolar cells were eGFP pos . Adult tissues, in which alveolarization was complete, contained a very small number of eGFP pos -pro-SpC pos alveolar cells (,0.5-1%) ( Figure 6B ). High resolution confocal microscopy analysis revealed that at all the developmental stages analyzed only a very small portion of type-I pneumocytes were eGFP pos ( Figure S7 ). Interestingly, ectopic over-expression of a constitutive ALK3 in cultures of adult primary pulmonary cells resulted in increased pro-SpC (,6-fold) and Id1 (,15 fold) mRNA levels, in comparison to the untreated or ALK5ca treated groups ( Figure 6C ) further implicating canonical BMP-signaling in the physiology of type-II pneumocytes.