Cellular activities that lead to organogenesis are mediated by epithelial-mesenchymal interactions, which ultimately result from local activation of complex gene networks. Fibroblast growth factor (FGF) signaling is an essential component of the regulatory network present in the embryonic lung, controlling proliferation, differentiation and pattern formation. However, little is known about how FGFs interact with other signaling molecules in these processes. By using cell and organ culture systems, we provide evidence that FGFs, Sonic hedgehog (Shh), bone morphogenetic protein 4 (BMP-4), and TGFbeta-1 form a regulatory circuit that is likely relevant for lung development in vivo. Our data show that FGF-10 and FGF-7, important for patterning and growth of the lung bud, are differentially regulated by FGF-1, -2 and Shh. In addition, we show that FGFs regulate expression of Shh, BMP-4 and other FGF family members. Our data support a model in which Shh, TGFbeta-1 and BMP-4 counteract the bud promoting effects of FGF-10, and where FGF levels are maintained throughout lung development by other FGFs and Shh.