Little is known about the mechanisms by which the lung epithelial progenitors are initially patterned and how proximal-distal boundaries are established and maintained when the lung primordium forms and starts to branch. Here we identified a number of Notch pathway components in respiratory progenitors of the early lung, and we investigated the role of Notch in lung pattern formation. By preventing γ-secretase cleavage of Notch receptors, we have disrupted global Notch signaling in the foregut and in the lung during the initial stages of murine lung morphogenesis. We demonstrate that Notch signaling is not necessary for lung bud initiation; however, Notch is required to maintain a balance of proximal-distal cell fates at these early stages. Disruption of Notch signaling dramatically expands the population of distal progenitors, altering morphogenetic boundaries and preventing formation of proximal structures. Our data suggest a novel mechanism in which Notch and fibroblast growth factor signaling interact to control the proximal-distal pattern of forming airways in the mammalian lung.