In this study, we examined the effects of dexamethasone (DEX) on airway branching and subsequent lung maturation. DEX treatment of fetal rat lung explants was initiated during the early pseudoglandular stage of development. Day 14 fetal lung explants were cultured with and without DEX for 4 d. Explants treated with 10 nM or higher concentrations of DEX showed features of both distorted and accelerated maturation. DEX-treated lungs had growth retardation, distorted branching, dilated proximal tubules, and suppressed proliferation of epithelial cells of the distal tubules. Several biochemical and morphologic features of accelerated maturation were also observed:1) the epithelial cells lining the distal tubules (prospective respiratory airways) were generally cuboidal or flattened; 2) the cuboidal cells often contained lamellar bodies and abundant glycogen;3) rudimentary septa and large airspace were present; 4) mesenchymal tissue was attenuated and compressed between adjacent epithelial tubules; 5) the distribution of SP-C mRNA in distal tubules was more mature, with individual and clusters of cells expressing SP-C transcripts; and6) the transcript levels of several genes related to epithelial growth [keratinocyte growth factor (KGF), KGF receptor, and hepatocyte growth factor receptor] and differentiation [surfactant proteins, SP-A, SP-B and SP-C and the Clara cell secretory protein, CC10] were precociously increased. These results show that DEX treatment of the lung during the early pseudoglandular stage accelerates the acquisition of several features of advanced maturation that normally accompany late stages of fetal development. We postulate that KGF mediates at least some effects of DEX on lung maturation and gene expression.