Wnt–β-catenin signaling regulates cell fate during organ development and postnatal tissue maintenance, but its contribution to specification of distinct lung epithelial lineages is still unclear. To address this question, we used a Cre recombinase (Cre)-LoxP approach to activate canonical Wnt signaling ectopically in developing lung endoderm. We found that persistent activation of canonical Wnt signaling within distal lung endoderm was permissive for normal development of alveolar epithelium, yet led to the loss of developing bronchiolar epithelium and ectasis of distal conducting airways. Activation of canonical Wnt led to ectopic expression of a lymphoid-enhancing factor and a T-cell factor (LEF and TCF, respectively) and absence of SRY (sex-determining region Y)-box 2 (SOX2) and tumor protein p63 (p63) expression in proximal derivatives. Conditional loss of SOX2 in airways phenocopied epithelial differentiation defects observed with ectopic activation of canonical Wnt. Our data suggest that Wnt negatively regulates a SOX2-dependent signaling program required for developmental progression of the bronchiolar lineage.