Utilizing a transgenic reporter mouse line harboring a BMPresponsive eGFP reporter allele we were able to construct a detailed spatiotemporal map of canonical BMP signalling during early lung development and adult lung tissue injury repair. Our studies demonstrated that during the pseudoglandular stage, when branching morphogenesis characterises lung development, canonical BMP pathway is active mainly in the vascular network and the airway smooth muscle layer. Only after the completion of branching morphogenesis and the initiation of epithelial cell differentiation canonical BMP pathway activation commences in airway and alveolar epithelial cell that are enriched in progenitors that can form epithelial colonies in Matrigel in-vitro. The BRE-eGFP reporter is reactivated in mesenchyme-free distal epithelial buds cultured in Matrigel suggesting that the low reporter activity in intact lungs is the result of a dynamic interplay between the endoderm and the mesenchyme and moreover suggest that the elusive, mesenchyme derived, epithelial growth promoting signal postulated by Bragg et al. [51] may act by regulating negatively activation of the canonical BMP pathway in the distal epithelium buds.