The effects of Wnt7b on lung development were examined using a conditional Wnt7b-null mouse. Wnt7b-null lungs are markedly hypoplastic, yet display largely normal patterning and cell differentiation. In contrast to findings in prior hypomorphic Wnt7b models, we find decreased replication of both developing epithelium and mesenchyme, without abnormalities of vascular smooth muscle development. We further demonstrate that Wnt7b signals to neighboring cells to activate both autocrine and paracrine canonical Wnt signaling cascades. In contrast to results from hypomorphic models, we show that Wnt7b modulates several important signaling pathways in the lung. Together, these cascades result in the coordinated proliferation of adjacent epithelial and mesenchymal cells to stimulate organ growth with few alterations in differentiation and patterning.