Lung development depends on endodermal Sonic Hedgehog (Shh) signaling to mesodermal Wingless/int/beta catenin (Wnt/betacatenin), followed by parathyroid hormone-related protein (PTHrP) signaling from endoderm to mesoderm. Fluid distension of fetal rat lung explants up-regulates PTHrP signaling and down-regulates Shh/Wnt/betacatenin signaling, marked by decreases in Patched, Gli, Frizzled, and Dishevelled, inducing fibroblast triglyceride uptake, type II cell saturated phosphatidylcholine, and surfactant protein-B expression. Bumetanide, which inhibits fluid distension, blocked down-regulation of the Shh/Wnt/betacatenin pathway and up-regulation of the PTHrP pathway, whereas PTHrP (1-34, 5 x 10(-7) M) treatment overcame bumetanide inhibition, and the PTHrP receptor antagonist PTHrP (7-34) amide (5 x 10(-6) M) mimicked bumetanide, indicating that PTHrP signaling mediates fluid distension-induced alveolar differentiation. Fetal rat lung explant automaturation was characterized by decreased Wnt/betacatenin signaling and increased PTHrP/PTHrP receptor signaling, up-regulating fibroblast-specific adipocyte differentiation related protein (ADRP) and peroxisome proliferator-activated receptor gamma. Wnt/betacatenin agonists (LiCl or SB415268) maintained Shh/Wnt/betacatenin signaling, blocking spontaneous up-regulation of the PTHrP pathway, whereas PTHrP or cAMP down-regulated Shh/Wnt/betacatenin signaling and stimulated PTHrP signaling for fibroblast and type II cell differentiation. This is the first evidence that alveolar fluid distension is an organizing principle for PTHrP signaling down-regulation of the Shh/Wnt/betacatenin pathway.