Smooth muscle in the lung is thought to derive from the developing lung mesenchyme. Smooth muscle formation relies upon coordination of both autocrine and paracrine signaling between the budding epithelium and adjacent mesenchyme to govern its proliferation and differentiation. However, the pathways initiating the earliest aspects of smooth muscle specification and differentiation in the lung are poorly understood. Here, we identify the Wnt2 ligand as a critical regulator of the earliest aspects of lung airway smooth muscle development. Using Wnt2 loss and gain of function models, we show that Wnt2 signaling is necessary and sufficient for activation of a transcriptional and signaling network critical for smooth muscle specification and differentiation including myocardin/Mrtf-B and the signaling factor Fgf10. These studies place Wnt2 high in a hierarchy of signaling molecules that promote the earliest aspects of lung airway smooth muscle development.