Alveolar growth abnormalities and severe respiratory dysfunction are often fatal. Identifying mechanisms that control epithelial proliferation and enlarged, poorly septated airspaces is essential in developing new therapies for lung disease. The membrane-bound ligand ephrin-B2 is strongly expressed in lung epithelium, and yet in contrast to its known requirement for arteriogenesis, considerably less is known regarding the function of this protein in the epithelium. We hypothesize that the vascular mediator ephrin-B2 governs alveolar growth and mechanics beyond the confines of the endothelium. We used the in vivo manipulation of ephrin-B2 reverse signaling to determine the role of this vascular mediator in the pulmonary epithelium and distal lung mechanics. We determined that the ephrin-B2 gene (EfnB2) is strongly expressed in alveolar Type 2 cells throughout development and into adulthood. The role of ephrin-B2 reverse signaling in the lung was assessed in Efnb2^LacZ/6YFΔV mutants that coexpress the intracellular truncated ephrin-B2–β-galactosidase fusion and an intracellular point mutant ephrin-B2 protein that is unable to become tyrosine-phosphorylated or to interact with either the SH2 or PDZ domain–containing downstream signaling proteins. In these viable mice, we observed pulmonary hypoplasia and altered pulmonary mechanics, as evidenced by a marked reduction in lung compliance. Associated with the reduction in lung compliance was a significant increase in insoluble fibronectin (FN) basement membrane matrix assembly with FN deposition, and a corresponding increase in the α5 integrin receptor required for FN fibrillogenesis. These experiments indicate that ephrin-B2 reverse signaling mediates distal alveolar formation, fibrillogenesis, and pulmonary compliance.