Lungs develop from paired endodermal outgrowths surrounded by a mesodermal mesenchyme. Part of this mesenchyme arises from epithelial-mesenchymal transition of the mesothelium that lines the pulmonary buds. Previous studies have shown that this mesothelium-derived mesenchyme contributes to the smooth muscle of the pulmonary vessels, but its significance for lung morphogenesis and its developmental fate are still little known. We have studied this issue using the transgenic mouse model mWt1/IRES/GFP-Cre (Wt1^cre) crossed with the Rosa26R-EYFP reporter mouse. In the developing lungs, Wt1, the Wilms' tumor suppressor gene, is specifically expressed in the embryonic mesothelium. In the embryos obtained from the crossbreeding, the Wt1-expressing cell lineage produces the yellow fluorescent protein (YFP), allowing for colocalization with differentiation markers. Wt1^cre-YFP cells were very abundant from the origin of the lung buds to postnatal stages, contributing significantly to pulmonary endothelial and smooth muscle cells, bronchial musculature, tracheal and bronchial cartilage, as well as CD34⁺fibroblast-like interstitial cells. Thus Wt1^cre-YFP mesenchymal cells show the very same differentiation potential as the splanchnopleural mesenchyme surrounding the lung buds. FSP1⁺fibroblast-like cells were always YFP⁻; they expressed the common leukocyte antigen CD45 and were apparently recruited from circulating progenitors. We have also found defects in pulmonary development in Wt1^−/−embryos, which showed abnormally fused lung lobes, round-shaped and reduced pleural cavities, and diaphragmatic hernia. Our results suggest a novel role for the embryonic mesothelium-derived cells in lung morphogenesis and involve the Wilms' tumor suppressor gene in the development of this organ.