Proteoglycans (PGs) have been shown to play a key role in the development of many tissues. We have investigated the role of sulfated PGs in early rat lung development by treating cultured tissues with 30 mM sodium chlorate, a global inhibitor of PG sulfation. Chlorate treatment disrupted growth and branching of embryonic day 13 lung explants. Isolated lung epithelium (LgE) migrated toward and invaded lung mesenchyme (LgM), and chlorate irreversibly suppressed this response. Chlorate also inhibited migration of LgE toward beads soaked in FGF10. Chlorate severely decreased branching morphogenesis in tissue recombinants consisting of LgM plus either LgE or tracheal epithelium (TrE) and decreased expression of surfactant protein C gene (SP-C). Chlorate also reduced bone morphogenetic protein-4 expression in cultured tips and recombinants but had no effect on the expression of clara cell 10-kDa protein (CC10), sonic hedgehog (Shh), FGF10, and FGF receptor 2IIIb. Chlorate reduced the growth of LgE in mesenchyme-free culture but did not affect SP-C expression. In contrast, chlorate inhibited both rudiment growth and the induction of SP-C in mesenchyme-free cultured TrE. Treatment of lung tips and tissue recombinants with chondroitinase ABC abolished branching morphogenesis. Chondroitinase also suppressed growth of TrE in mesenchyme-free culture. Chondroitinase treatment, however, had no effect on the induction of SP-C expression in any of these cultures. These results demonstrate the overall importance of sulfated PGs to normal lung development and demonstrate a dynamic role for chondroitin sulfate PGs in embryonic lung growth and morphogenesis.