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In the adult lung the pulmonary arteries run alongside the airways and the pulmonary veins show a similar branching pattern to the arteries, though separated from them. During early fetal development the airways act as a template for pulmonary blood vessel development in that the vessels form by vasculogenesis around the branching airways. In later lung development the capillary bed is essential for alveolar formation. This paper reviews evidence for the interaction of the airways and blood vessels in both normal and abnormal lung development.