Remodeling of the extracellular matrix by matrix-degrading metalloproteinases (MMPs) has been implicated in the early morphogenesis of branched organs. Growth factors such as EGF and TGF alpha are known to regulate the expression of MMPs in a variety of systems. We therefore examined the effects of EGF, TGF alpha, and collagenase upon in vitro branching of the embryonic lung. Lung rudiments from 11.5 day post coitum mice underwent extensive growth and repetitive branching during a 3-day period in organ culture. Lungs treated with EGF or TGF alpha were larger than controls, yet displayed fewer branches along with markedly dilated end buds which lacked clefts, indicating that these growth factors inhibit normal lung branching. Addition of purified mammalian collagenase to lung cultures similarly inhibited epithelial branching and produced end bud enlargement. In addition, gelatin-substrate enzymography of the conditioned medium from EGF- and TGF alpha-treated lungs revealed a marked induction of a metalloproteinase activity which most likely corresponds to the 72kDa type IV collagenase/gelatinase which degrades basement membrane collagens. Lungs maintained in the presence of both TGF alpha and TIMP, a specific inhibitor of MMPs, branched repeatedly and displayed normal, narrow end buds as seen with controls, suggesting that TIMP is capable of preventing or reversing the observed growth factor mediated effects upon lung branching. Taken together, these results provide evidence that the growth factors EGF and TGF alpha guide lung development, at least in part, by inducing the expression of matrix-degrading metalloproteinases.