Pleuropulmonary Blastoma (PPB) is the primary neoplastic manifestation of a pediatric cancer predisposition syndrome that is associated with several diseases including cystic nephroma, Wilms tumor, neuroblastoma, rhabdomyosarcoma, medulloblastoma, and ovarian Sertoli-Leydig cell tumor. The primary pathology of PPB, epithelial cysts with stromal hyperplasia and risk for progression to a complex primitive sarcoma, is associated with familial heterozygosity and lesion-associated epithelial loss-of-heterozygosity of DICER1. It has been hypothesized that loss of heterozygosity of DICER1 in lung epithelium is a non-cell autonomous etiology of PPB and a critical pathway that regulates lung development; however, there are no known direct targets of epithelial microRNAs (miRNAs) in the lung. Fibroblast Growth Factor 9 (FGF9) is expressed in the mesothelium and epithelium during lung development and primarily functions to regulate lung mesenchyme; however, there are no known mechanisms that regulate FGF9 expression during lung development. Using mouse genetics and molecular phenotyping of human PPB tissue, we show that FGF9 is overexpressed in lung epithelium in the initial multicystic stage of Type I PPB and that in mice lacking epithelial Dicer1, or induced to overexpress epithelial Fgf9, increased Fgf9 expression results in pulmonary mesenchymal hyperplasia and a multicystic architecture that is histologically and molecularly indistinguishable from Type I PPB. We further show that miR-140 is expressed in lung epithelium, regulates epithelial Fgf9 expression, and regulates pseudoglandular stages of lung development. These studies identify an essential miRNA-FGF9 pathway for lung development and a non-cell autonomous signaling mechanism that contributes to the mesenchymal hyperplasia that is characteristic of Type I PPB.