Pulmonary vascular development relies on vasculogenesis and angiogenesis. In both instances, differentiating pulmonary endothelial cells (ECs) must connect to form vascular networks. Here, we provide evidence indicating that the paired-related homeobox gene Prx1 promotes both distal vasculogenesis and vascular network formation, and we identify a potential mechanism by which this occurs. During embryonic lung development, Prx1 was expressed by differentiating ECs emerging within the distal mesenchyme, as well as in ECs forming networks, suggesting that Prx1 might participate in either of these processes. In keeping with this, cellular transfection studies showed that Prx1-transformed EC precursors derived from the lung mesenchyme not only acquire an EC-like phenotype, but that these cells are also able to form polarized, three-dimensional vascular networks on basement membrane matrix (Matrigel; BD Biosciences; San Jose, CA) in a manner that depends on tenascin-C (TN-C), a proangiogenic extracellular matrix glycoprotein that is induced by Prx1. Consistent with these findings, lungs from newborn Prx1-null mice, which are cyanotic and die shortly after birth from respiratory distress, expressed decreased levels of TN-C and contained markedly reduced numbers of distal blood vessels when compared to Prx1-wild-type littermates.