Thyroid transcription factor-1 (TTF-1), a member of the Nkx2 family of homeodomain-containing transcription factors, is expressed in the epithelium of the lung. TTF-1 is a critical regulator of transcription for the surfactant proteins (SP) A, B, and C and is essential for lung morphogenesis. Sites and levels of TTF-1 expression vary during lung morphogenesis and following injury. In order to determine the role of TTF-1 in lung formation, transgenic mice were generated in which TTF-1 was expressed in respiratory epithelial cells of wild-type and Ttf1 null mutant (-/-) mice, using the lung-specific SP-C promoter. The SP-C-Ttf1 transgene did not rescue the severe pulmonary hypoplasia characteristic of the Ttf1 (-/-) mice. Increased expression of TTF-1, however, caused dose-dependent alterations in postnatal lung morphology of wild-type mice. Modest overexpression of TTF-1 caused type II cell hyperplasia and increased the cellular content of SP-B. In contrast, higher expression levels of TTF-1 disrupted alveolar septation, causing emphysema. In mice with the highest transgene expression, TTF-1 caused severe inflammation, pulmonary fibrosis, respiratory failure, and death, associated with eosinophil infiltration and increased expression of eotaxin and IL-6. Increased expression of TTF-1 altered alveolarization and caused chronic pulmonary inflammation, demonstrating that precise regulation of TTF-1 is critical for homeostasis in the postnatal lung.