Smoking related destructive lung diseases such as chronic obstructive lung disease (COPD) and emphysema are a major cause of morbidity and mortality worldwide. The immediate cause of emphysema is the obliteration of alveoli that are key functional units of the lungs where gas exchange takes place. Alveolar generation/regeneration under normal and pathological conditions is a poorly understood process, but may hold the key to treatment of human emphysema. We used suppression subtractive hybridization to identify genes that may control alveolar generation during periods of pre- and postnatal active alveolar development. P311, a putative neuronal protein originally identified for its high expression in late-stage embryonic brain, was highly differentially expressed during periods of active distal lung morphogenesis. Quantitative real time RT-PCR showed that the expression of P311 is developmentally regulated, with peak levels occurring during saccular and alveolar formation. Intriguingly, P311 gene expression was significantly decreased in lungs of individuals with emphysema compared to control subjects. Consistent with a role for this gene in alveolar formation, inhibition of alveolization by dexamethasone treatment in vivo resulted in decreased expression of P311. Together our data suggest that P311 expression is tightly regulated during the critical periods of alveolar formation, and that under pathological conditions, its relative absence may contribute to failure of alveolar regeneration and lead to the development of human emphysema.