Postnatal lung function is critically dependent upon optimal embryonic lung development. As the free ionized plasma calcium concentration ([Ca2+]o) of the fetus is higher than that of the adult, the process of lung development occurs in a hypercalcaemic environment. In the adult, [Ca2+]o is monitored by the G-protein coupled, extracellular calcium-sensing receptor (CaR), but neither its ontogeny nor its potential role in lung development are known. Here, we demonstrate that CaR is expressed in the mouse lung epithelium, and that its expression is developmentally regulated, with a peak of expression at embryonic day 12.5 (E12.5) and a subsequent decrease by E18, after which the receptor is absent. Experiments carried out using the lung explant culture model in vitro show that lung branching morphogenesis is sensitive to [Ca2+]o, being maximal at physiological adult [Ca2+]o (i.e. 1.0–1.3 mM) and lowest at the higher, fetal (i.e. 1.7 mM) [Ca2+]o. Administration of the specific CaR positive allosteric modulator, the calcimimetic R-568, mimics the suppressive effects of high [Ca2+]o on branching morphogenesis while both phospholipase C and PI3 kinase inhibition reverse these effects. CaR activation suppresses cell proliferation while it enhances intracellular calcium signalling, lung distension and fluid secretion. Conditions which are restrictive either to branching or to secretion can be rescued by manipulating [Ca2+]o in the culture medium. In conclusion, fetal Ca2+o, acting through a developmentally regulated CaR, is an important extrinsic factor that modulates the intrinsic lung developmental programme. Our observations support a novel role for the CaR in preventing hyperplastic lung disease in utero.