The Nuclear factor I (NFI) transcription factor family consists of four genes (Nfia, Nfib, Nfic and Nfix) that regulate the development of multiple organ systems in mice and humans. Nfib is expressed in both lung mesenchyme and epithelium and mice lacking Nfib have severe lung maturation defects and die at birth. Here we continue our analysis of the phenotype of Nfib⁻/⁻ lungs and show that Nfib specifically in lung mesenchyme controls late epithelial and mesenchymal cell proliferation and differentiation. There are more PCNA, BrdU, PHH3 and Ki67 positive cells in Nfib⁻/⁻ lungs than in wild type lungs at E18.5 and this increase in proliferation marker expression is seen in both epithelial and mesenchymal cells. The loss of Nfib in all lung cells decreases the expression of markers for alveolar epithelial cells (Aqp5 and Sftpc), Clara cells (Scgb1a1) and ciliated cells (Foxj1) in E18.5 lungs. To test for a specific role of Nfib in lung mesenchyme we generated and analyzed Nfib(flox/flox), Dermo1-Cre mice. Loss of Nfib only in mesenchyme results in decreased Aqp5, Sftpc and Foxj1 expression, increased cell proliferation, and a defect in sacculation similar to that seen in Nfib⁻/⁻ mice. In contrast, mesenchyme specific loss of Nfib had no effect on the expression of Scgb1a1 in the airway. Microarray and QPCR analyses indicate that the loss of Nfib in lung mesenchyme affects the expression of genes associated with extracellular matrix, cell adhesion and FGF signaling which could affect distal lung maturation. Our data indicate that mesenchymal Nfib regulates both mesenchymal and epithelial cell proliferation through multiple pathways and that mesenchymal NFI-B-mediated signals are essential for the maturation of distal lung epithelium.