Lung morphogenesis requires precise coordination between branching morphogenesis and vascularization in order to generate distal airways capable of supporting respiration at the cell-cell interface. The specific origins and types of blood vessels that initially form in the lung, however, remain obscure. Herein, we definitively show that during the early phases of lung development [i.e. Embryonic day (E) 11.5], functional vessels, replete with blood flow, are restricted to the mesenchyme, distal to the epithelium. However, by E14.5, and in response to epithelial-derived VEGF signals, functional vessels extend from the mesenchyme to the epithelial interface. Moreover, these vessels reside adjacent to multipotent mesenchymal stromal cells that likely play a regulatory role in this process. As well and distinct from the systemic vasculature, immunostaining for EphrinB2 and EphB4 revealed that arterial and venous identity is not distinguishable in emergent pulmonary vasculature. Collectively, this study provides evidence that lung vascularization initially originates in the mesenchyme, distal to the epithelium, and that arterial-venous specification does not exist in the early lung. At a mechanistic level, we show that basilar epithelial VEGF prompts endothelial cells to move towards the epithelium where they undergo morphogenisis during the proliferative, canalicular stage. Thus our findings challenge existing notions of vascular origin and identity during development.