An unanticipated and tremendous amount of the non-coding sequences of the human genome are transcribed. Long non-coding RNAs (lncRNAs) constitute a significant fraction of non-protein coding transcripts; however, their functions remain enigmatic. We demonstrate that deletions of a small non-coding differentially-methylated region at 16q24.1, including lncRNA genes, cause a lethal lung developmental disorder, Alveolar Capillary Dysplasia with Misalignment of Pulmonary Veins (ACD/MPV), with parent of origin effects. We identify overlapping deletions 250 kb upstream to FOXF1 in nine patients with ACD/MPV that arose de novo specifically on the maternally inherited chromosome and delete two lung-specific lncRNA genes. These deletions define a distant cis-regulatory region that harbors, besides lncRNA genes, also a differentially methylated CpG island, binds GLI2 depending on the methylation status of this CpG island, and physically interacts with and up-regulates the FOXF1 promoter. We suggest that lung-transcribed 16q24.1 lncRNAs may contribute to long-range regulation of FOXF1 by GLI and other transcription factors. Perturbation of lncRNA-mediated chromatin interactions may, in general, be responsible for position effect phenomenon and potentially cause many disorders of human development.