COPD is associated with a progressive, irreversible decline in pulmonary function. This is caused in large part by emphysema, the ongoing inflammatory destruction of the alveoli and increased airspace size, loss of lung elastic recoil, and hyperinflation. The discovery of novel drugs that can reduce the rate of lung destruction and airflow limitation, or even stop or reverse the underlying processes remains a “holy grail” for the therapy of this disorder. Recent reports that retinoic acid markedly ameliorates the emphysema induced in rats by administration of elastase have sparked considerable interest in retinoids and other alveolar morphogens as potential therapeutic agents. This review focuses on mechanisms involved in mammalian alveolar formation, which occurs mainly after birth. Roles of endogenous retinoids on pulmonary structural cell (epithelial and mesenchymal cells) differentiation and lung development are discussed. Also discussed are lung development and structural studies in mice that are genetically altered with respect to the expression of subtypes of retinoid receptors. Effects of retinoids and other growth factors on elastin gene expression and alveolus formation, and the potential pitfalls of drugs that interfere with these processes as therapeutic agents are addressed.