The degree of fetal lung expansion is a critical determinant of fetal lung growth and alveolar epithelial cell (AEC) differentiation, although the mechanisms involved are unknown. As VDUP1 (Vitamin D₃ up-regulated protein 1) can modulate cell proliferation, induce cell differentiation and is highly expressed in the lung, we have investigated the effects of fetal lung expansion on VDUP1 expression and its relationship to expansion-induced fetal lung growth and AEC differentiation in fetal sheep. Alterations in fetal lung expansion caused profound changes in VDUP1 mRNA levels in lung tissue. Increased fetal lung expansion significantly reduced VDUP1 mRNA levels from 100 ± 8% in control fetuses to 37 ± 4%, 46 ± 4% and 45 ± 9% of control values at 2, 4 and 10 days of increased fetal lung expansion, respectively. Reduced fetal lung expansion increased VDUP1 mRNA levels from 100 ± 16% in control fetuses to 162 ± 16% of control values after 7 days. VDUP1 was localized to airway epithelium in small bronchioles, AECs and some mesenchymal cells. Its expression was inversely correlated with cell proliferation during normal lung development (R²=0.972, p<0.002) as well as in response to alterations in fetal lung expansion (R²=0.956, p<0.001) and was positively correlated with SP-B expression during normal lung development (R²=0.803, p<0.0001) and following altered lung expansion (R²=0.817, p<0.001). We suggest that VDUP1 maybe an important mediator of expansion-induced lung cell proliferation and AEC differentiation in the developing lung.