The complex structure of the lung is developed sequentially, initially by epithelial tube branching and later by septation of terminal air sacs with accompanying coordinated growth of a variety of lung epithelial and mesenchymal cells. Groups of transcriptional factors, peptide growth factors and their intracellular signaling regulators, as well as extracellular matrix proteins are programmed to be expressed at appropriate levels in the right place at the right time to control normal lung formation. Studies of lung development and lung repair/fibrosis to date have discovered that many of the same factors that control normal development are also key players in lung injury repair and fibrosis. Transforming growth factor-beta (TGF-beta) family peptide signaling is a prime example. Lack of TGF-beta signaling results in abnormal lung branching morphogenesis and alveolarization during development, whereas excessive amounts of TGF-beta signaling cause severe hypoplasia in the immature lung and fibrosis in mature lung. This leads us to propose the 'Goldilocks' hypothesis of regulatory signaling in lung development and injury repair that everything must be done just right!