Nitric oxide (NO) regulates lung development through incompletely understood mechanisms. NO controls pulmonary vascular smooth muscle cell (SMC) differentiation largely through stimulating soluble guanylate cyclase (sGC) to produce cGMP and increase cGMP-mediated signaling. To examine the role of sGC in regulating pulmonary development, we tested whether decreased sGC activity reduces alveolarization in the normal and injured newborn lung. For these studies, mouse pups with gene-targeted sGC-α1 subunit truncation were used because we determined that they have decreased pulmonary sGC enzyme activity. sGC-α1 knockout (KO) mouse pups were observed to have decreased numbers of small airway structures and lung volume compared with wild-type (WT) mice although lung septation and body weights were not different. However, following mild lung injury caused by breathing 70% O₂, the sGC-α1 KO mouse pups had pronounced inhibition of alveolarization, as evidenced by an increase in airway mean linear intercept, reduction in terminal airway units, and decrease in lung septation and alveolar openings, as well as reduced somatic growth. Because cGMP regulates SMC phenotype, we also tested whether decreased sGC activity reduces lung myofibroblast differentiation. Cellular markers revealed that vascular SMC differentiation decreased, whereas myofibroblast activation increased in the hyperoxic sGC-α1 KO pup lung. These results indicate that lung development, particularly during hyperoxic injury, is impaired in mouse pups with diminished sGC activity. These studies support the investigation of sGC-targeting agents as therapies directed at improving development in the newborn lung exposed to injury.