The miR-17 family of microRNAs has recently been recognized for its importance during lung development. The transgenic overexpression of the entire miR-17-92 cluster in the lung epithelium led to elevated cellular proliferation and inhibition of differentiation, while targeted deletion of miR-17-92 and miR-106b-25 clusters showed embryonic or early post-natal lethality. Herein we demonstrate that miR-17 and its paralogs, miR-20a, and miR-106b, are highly expressed during the pseudoglandular stage and identify their critical functional role during embryonic lung development. Simultaneous downregulation of these three miRNAs in explants of isolated lung epithelium altered FGF10 induced budding morphogenesis, an effect that was rescued by synthetic miR-17. E-Cadherin levels were reduced, and its distribution was altered by miR-17, miR-20a and miR-106b downregulation, while conversely, beta-catenin activity was augmented, and expression of its downstream targets, including Bmp4 as well as Fgfr2b, increased. Finally, we identified Stat3 and Mapk14 as key direct targets of miR-17, miR-20a, and miR-106b and showed that simultaneous overexpression of Stat3 and Mapk14 mimics the alteration of E-Cadherin distribution observed after miR-17, miR-20a, and miR-106b downregulation. We conclude that the mir-17 family of miRNA modulates FGF10-FGFR2b downstream signaling by specifically targeting Stat3 and Mapk14, hence regulating E-Cadherin expression, which in turn modulates epithelial bud morphogenesis in response to FGF10 signaling. © 2009 Elsevier Inc. All rights reserved.