Decreased pulmonary expression of Forkhead Box f1 (Foxf1) transcription factor was associated with lethal alveolar hemorrhage in 55% of the Foxf1 +/− newborn mice. The severity of the pulmonary abnormalities correlates with the levels of Foxf1 mRNA. Defects in alveolarization and vasculogenesis were observed in subsets of the Foxf1 +/− mice with relatively low levels of expression from the normal Foxf1 allele. Lung hemorrhage was coincident with disruption of the mesenchymal–epithelial cell interfaces in the alveolar and bronchiolar regions of the lung parenchyma and was associated with increased apoptosis and reduced surfactant protein B (SP-B) expression. Finally, the lung defect associated with the Foxf1 +/− mutation was accompanied by reduced expression of vascular endothelial growth factor (VEGF), the VEGF receptor 2 (Flk-1), bone morphogenetic protein 4 (Bmp-4), and the transcription factors of the Brachyury T-Box family (Tbx2–Tbx5) and Lung Kruppel-like Factor. Reduction in the level of Foxf1 caused neonatal pulmonary hemorrhage and abnormalities in alveologenesis, implicating this transcription factor in the regulation of mesenchyme–epithelial interaction critical for lung morphogenesis.