Angiogenesis is crucial for lung development. Although there has been considerable exploration, the mechanism by which lung vascular and alveolar formation is controlled is still not completely understood. Here we show that low-density lipoprotein receptor-related protein 5 (LRP5), a component of the Wnt ligand-receptor complex, regulates angiogenesis and alveolar formation in the lung by modulating expression of the angiopoietin (Ang) receptor, Tie2, in vascular endothelial cells (ECs). Vascular development in whole mouse lungs and in cultured ECs is controlled by LRP5 signaling, which is, in turn, governed by a balance between the activities of the antagonistic Tie2 ligands, Ang1 and Ang2. Under physiological conditions when Ang1 is dominant, LRP5 knockdown decreases Tie2 expression and thereby, inhibits vascular and alveolar development in the lung. Conversely, when Ang2 dominates under hyperoxia treatment in neonatal mice, high LRP5 and Tie2 expression suppress angiogenesis and lung development. These findings suggest that the LRP5-Tie2-Ang signaling axis plays a central role in control of both angiogenesis and alveolarization during postnatal lung development, and that deregulation of this signaling mechanism might lead to developmental abnormalities of the lung, such as are observed in bronchopulmonary dysplasia (BPD).