The lungs of small premature babies are at a developmental stage of finalizing their airway tree by a process called branching morphogenesis, and of creating terminal gas exchange units by a mechanism called septation. If the branching process is disturbed, the lung has a propensity to be hypoplastic. If septation is impaired, the terminal gas exchange units, the alveoli, tend to be enlarged and reduced in number, an entity known as bronchopulmonary dysplasia. Here, we review current knowledge of key molecules influencing branching and septation. In particular, we discuss the molecular similarities and dissimilarities between the two processes of airspace enlargement. Understanding of the molecular mechanisms regulating branching and septation may provide perinatologists with targets for improving lung growth and maturation.