ELF5, an Ets family transcription factor found exclusively in epithelial cells, is expressed in the distal lung epithelium during embryogenesis, then becomes restricted to proximal airways at the end of gestation and postnatally. To test the hypothesis that ELF5 represses distal epithelial differentiation, we generated a transgenic mouse model in which a doxycycline inducible HA-tagged mouse Elf5 transgene was placed under the control of the lung epithelium-specific human SFTPC promoter. We found that expressing high levels of ELF5 during early lung development disrupted branching morphogenesis and produced a dilated epithelium. The effects of ELF5 on morphogenesis were stage-dependent, since inducing the transgene on E16.5 had no effect on branching. ELF5 reduced expression of the distal lung epithelial differentiation markers Erm, Napsa and Sftpc, and type II cell ultrastructural differentiation was immature. ELF5 overexpression did not induce the proximal airway epithelial markers Ccsp and Foxj1, but did induce expression of p63, a marker of basal cells in the trachea and esophagus. High ELF5 levels also induced the expression of genes found in other endodermal epithelia but not normally associated with the lung. These results suggest that precise levels of ELF5 regulate the specification and differentiation of epithelial cells in the lung.