© 2004 Elsevier Ltd All rights reserved.. This chapter discusses the development of airway epithelium and the regulation of the differentiation process. A number of developmental processes are involved in the establishment of the tracheobronchial airway tree. The pattern of branching of the airways including the angle of branching and the proportions of daughter branches in relation to parent airway appear to be established relatively early by the process of branching morphogenesis. This process is initiated with the earliest formation of respiratory tract structures in the thorax in the embryonic period and continues for a substantial period of time during early gestation. It is heavily dependent on epithelial-mesenchymal contact and continual interaction to regulate the rate and pattern of formation. The composition of the wall of the airways in adults varies substantially between different segments, with most of the differences being highly polarized from more proximal airways to more distal airways. The major components of the wall include surface lining epithelium with its associated derivative, the submucosal gland, the basement membrane zone, including basal lamina and an extended population of fibroblasts, and bundles of smooth muscle and cartilage. The distribution of all these components varies substantially within the airway tree in adults.