Vertebrate organ development relies on the precise spatiotemporal orchestration of proliferation rates and differentiation patterns in adjacent tissue compartments. The underlying integration of patterning and cell cycle control during organogenesis is insufficiently understood. Here, we have investigated the function of the patterning T-box transcription factor gene Tbx2 in lung development. We show that lungs of Tbx2-deficient mice are markedly hypoplastic and exhibit reduced branching morphogenesis. Mesenchymal proliferation was severely decreased, while mesenchymal differentiation into fibrocytes was prematurely induced. In the epithelial compartment, proliferation was reduced and differentiation of alveolar epithelial cells type 1 was compromised. Prior to the observed cellular changes, canonical Wnt signaling was downregulated, and Cdkn1a (p21) and Cdkn1b (p27) (two members of the Cip/Kip family of cell cycle inhibitors) were strongly induced in the Tbx2-deficient lung mesenchyme. Deletion of both Cdkn1a and Cdkn1b rescued, to a large degree, the growth deficits of Tbx2-deficient lungs. Prolongation of Tbx2 expression into adulthood led to hyperproliferation and maintenance of mesenchymal progenitor cells, with branching morphogenesis remaining unaffected. Expression of Cdkn1a and Cdkn1b was ablated from the lung mesenchyme in this gain-of-function setting. We further show by ChIP experiments that Tbx2 directly binds to Cdkn1a and Cdkn1b loci in vivo, defining these two genes as direct targets of Tbx2 repressive activity in the lung mesenchyme. We conclude that Tbx2-mediated regulation of Cdkn1a and Cdkn1b represents a crucial node in the network integrating patterning information and cell cycle regulation that underlies growth, differentiation, and branching morphogenesis of this organ.