Intrapulmonary engraftment of engineered lung tissues could provide a potential therapeutic approach for the treatment of pediatric and adult pulmonary diseases. In working toward this goal, we report here on in vivo generation of vascularized pulmonary tissue constructs utilizing the subcutaneous Matrigel plug model. Mixed populations of murine fetal pulmonary cells (FPCs) containing epithelial, mesenchymal, and endothelial cells (ECs) were isolated from the lungs of embryonic day 17.5 fetuses. FPCs were admixed to Matrigel and injected subcutaneously into the anterior abdominal wall of adult C57/BL6 mice to facilitate in vivo pulmonary tissue construct formation. Vascularization was enhanced by placing fibroblast growth factor 2 (FGF2)-loaded polyvinyl sponges into the hydrogel. After 1 week, routine histology and immunohistochemical staining for donor-derived epithelial cells and ECs as well as analysis of patent vasculature in the constructs following tail vein injection of fluorescein isothiocyanate-conjugated dextran were performed. In the Matrigel-only controls, some level of host infiltrate, but no measurable vascularization, was detected. In the presence of FPCs, the constructs contained ductal epithelial structures and patent vasculature. In the absence of FPCs, exogenous FGF2 induced the formation of numerous patent blood vessels throughout the entire constructs; in combination with FPCs, it resulted in enhanced capillary density and abundant interfacing between developing epithelial and vascular structures. The significant findings of this study are that distal pulmonary epithelial differentiation (as assessed by the expression of prosurfactant protein C) can be maintained in vivo and that donor-derived ECs contribute to the formation of patent vessels that interface tightly with ductal epithelial structures.