Murine lung development begins at embryonic day (E) 9.5. Normal lung structure and function depend on the patterns of localization of differentiated cells. Pulmonary mesenchymal cell lineages have been relatively unexplored. Importantly, there has been no prior evidence of clonality of any lung cells. Herein we use a definitive genetic approach to demonstrate a common origin for proximal and distal pulmonary mesenchymal cells. A retroviral library with 3,400 unique inserts was microinjected into the airway lumen of E11.5 lung buds. After 7-11 days of culture, buds were stained for placental alkaline phosphatase (PLAP). Most PLAP+ cells are peribronchial smooth muscle cells, initially localized laterally near the hilum, then migrating down airways to the subpleural region. Laser-capture microdissection and polymerase chain reaction confirm the clonal identities of PLAP+ cells proximally and distally. Our observation of this fundamental process during lung development opens new avenues for investigation of maladaptive mesenchymal responses in lung diseases.