Protein phosphatase 2A (PP2A) is a key signal transduction intermediate in the regulation of cellular proliferation and differentiation in vitro. However, the role of PP2A in the context of a developing organ is unknown. To explore the role of PP2A in the regulation of lung development, we studied the effect of PP2A inhibition on new airway branching, induction of apoptosis, DNA synthesis, and expression of epithelial marker genes in whole organ explant cultures of embryonic (E14) rat lung. Microdissected lung primordia were cultured in medium containing one of either two PP2A inhibitors, okadaic acid (OA, 0-9 nM) or cantharidin (Can, 0-3,600 nM), or with the PP2B inhibitor deltamethrin (Del, 0-10 µM) as a control for a PP2A-specific effect for 48 h. PP2A inhibition with OA and Can significantly inhibited airway branching and overall lung growth. PP2B inhibition with Del did not affect lung growth or new airway development. Histologically, both PP2A- and PP2B-inhibited explants were similar to controls. Increased apoptosis was not the mechanism of decreased lung growth and new airway branching inasmuch as OA-treated explant sections subjected to the terminal deoxynucleotidyltransferase dUTP nick end labeling reaction demonstrated a decrease in apoptosis. However, PP2A inhibition with OA increased DNA content and 5-bromo-2'-deoxyuridine uptake that correlated with a G₂/M cell cycle arrest. PP2A inhibition also resulted in altered differentiation of the respiratory epithelium as evidenced by decreased mRNA levels of the early epithelial marker surfactant protein C. These findings suggest that inhibition of protein phosphatases with OA and Can halted mesenchymal cell cycle progression and reduced branching morphogenesis in fetal rat lung explant culture.