Accurate fluid pressure in the fetal lung is critical for its development, especially at the beginning of the saccular stage when alveolar epithelial type 1 (AT1) and type 2 (AT2) cells differentiate from the epithelial progenitors. Despite our growing understanding of the role of physical forces in lung development, the molecular mechanisms that regulate the transduction of mechanical stretch to alveolar differentiation remain elusive. To simulate lung distension, we optimized both an ex vivo model with precision cut lung slices and an in vivo model of fetal tracheal occlusion. Increased mechanical tension showed to improve alveolar maturation and differentiation toward AT1. By manipulating ROCK pathway, we demonstrate that stretch-induced Yap/Taz activation promotes alveolar differentiation toward AT1 phenotype via ROCK activity. Our findings show that balanced ROCK-Yap/Taz signaling is essential to regulate AT1 differentiation in response to mechanical stretching of the fetal lung, which might be helpful in improving lung development and regeneration.