Pulmonary neuroendocrine cells (PNECs) are the first cell type to differentiate within the primitive airway epithelium, suggesting a possible role in lung development. The differentiation of PNECs in fetal lung is governed by proneural genes such as the mammalian homolog of the achaete-scute complex (Mash-1) and a related transcription factor, hairy and enhancer of split1 (Hes-1). We examined the expression of Mash-1 and a downstream transcription factor Prox-1 in the developing mouse lung of wild-type and respective knockout mouse models. During early stages (embryonic day 12, E12) of development, only some PNECs expressed Mash-1 and Prox-1, but by E15, all PNECs coexpressed both transcription factors. PNECs failed to develop in Mash-1 but not in Prox-1-null mice, indicating that Mash-1 is essential for the initiation of the PNEC phenotype, whereas Prox-1 is associated with the development of this phenotype. As lung develops within a low O(2) environment (fetal euoxia, pO(2) approximately 20 to 30 mm Hg), we examined the effects of hypoxia on PNEC differentiation. Organ cultures of fetal mouse lungs at E12 and E16 were maintained under either 20% O(2) (normoxia, Nox) or 5% O(2) (hypoxia, Hox) and were examined every 24 h for up to 6 days in culture. In E12 explants, Hox enhanced branching morphogenesis and increased cell proliferation, but PNEC numbers and Mash-1 expression were significantly reduced. This effect could be reversed by switching the explants back to Nox. In contrast, Hox had no apparent effect on Hes-1 expression. Similarly, Hox had no effect on airway branching, PNEC numbers, or Mash-1 expression in E16 explants, indicating locked-in developmental programming. We suggest that during early stages of lung development, pO(2) concentration in concert with neurogenic gene expression modulates PNEC phenotype. Thus, disturbances in intrauterine pO(2) homeostasis could alter the functional maturation of the PNEC system and hence be involved in the pathogenesis of various perinatal pulmonary disorders.