Keratinocyte growth factor (KGF) caused cystic dilation of mouse fetal lung explants in vitro, markedly increasing the luminal volume of lung buds and disrupting branching morphogenesis. Effects of KGF were dose dependent, were detected within 4 h of treatment, and were blocked by cycloheximide but not by actinomycin D, indicating that de novo protein synthesis mediated the response. Effects of KGF were inhibited by bumetanide, an inhibitor of the Na(+)-K(+)-Cl- cotransporter, and ouabain, an inhibitor of the Na(+)-K(+)-ATPase. KGF stimulated fluid secretion equally in lung buds from cystic fibrosis transmembrane conductance regulators (CFTR) -/- and wild-type embryos, indicating that the effects were mediated by CFTR-independent Cl- transport. Microelectrode studies demonstrated that, whereas KGF did not acutely alter the transepithelial potential difference (PD) across the respiratory epithelium, the PD decreased while luminal volume increased during chronic exposure. KGF inhibited expression of alpha-subunit of epithelial Na+ channel (alpha-ENaC) mRNA, suggesting that KGF may inhibit Na+ absorption, which may contribute to KGF-induced fluid accumulation. KGF-induced fluid accumulation is driven by CFTR-independent Cl- transport and associated with decreased expression of alpha-ENaC.