Signaling by Bone Morphogenetic Proteins (BMP) has been implicated in early lung development, adult lung homeostasis and tissue-injury repair. However, the precise mechanism of action and the spatio-temporal pattern of BMP-signaling during these processes remains inadequately described. To address this, we have utilized a transgenic line harboring a BMP-responsive eGFP-reporter allele (BRE-eGFP) to construct the first detailed spatiotemporal map of canonical BMP-pathway activation during lung development, homeostasis and adult-lung injury repair. We demonstrate that during the pseudoglandular stage, when branching morphogenesis progresses in the developing lung, canonical BMP-pathway is active mainly in the vascular network and the sub-epithelial smooth muscle layer of the proximal airways. Activation of the BMP-pathway becomes evident in epithelial compartments only after embryonic day (E) 14.5 primarily in cells negative for epithelial-lineage markers, located in the proximal portion of the airway-tree, clusters adjacent to neuro-epithelial-bodies (NEBs) and in a substantial portion of alveolar epithelial cells. The pathway becomes activated in isolated E12.5 mesenchyme-free distal epithelial buds cultured in Matrigel suggesting that absence of reporter activity in these regions stems from a dynamic cross-talk between endoderm and mesenchyme. Epithelial cells with activated BMP-pathway are enriched in progenitors capable of forming colonies in three-dimensional Matrigel cultures.