The sterile alpha motif (SAM) and SRC homology 3 (SH3) domain containing protein 1 (Sash1) acts as a scaffold in TLR4 signaling. We generated Sash1^−/− mice, which die in the perinatal period due to respiratory distress. Constitutive or endothelial-restricted Sash1 loss leads to a delay in maturation of alveolar epithelial cells causing reduced surfactant-associated protein synthesis. We show that Sash1 interacts with β-arrestin 1 downstream of the TLR4 pathway to activate Akt and endothelial nitric oxide synthase (eNOS) in microvascular endothelial cells. Generation of nitric oxide downstream of Sash1 in endothelial cells affects alveolar epithelial cells in a cGMP-dependent manner, inducing maturation of alveolar type 1 and 2 cells. Thus, we identify a critical cell nonautonomous function for Sash1 in embryonic development in which endothelial Sash1 regulates alveolar epithelial cell maturation and promotes pulmonary surfactant production through nitric oxide signaling. Lung immaturity is a major cause of respiratory distress and mortality in preterm infants, and these findings identify the endothelium as a potential target for therapy.