Cell fate and morphogenesis within the embryo is dependent upon secreted molecules that transduce signals between neighboring tissues. Reciprocal mesenchymal-epithelial interactions have proven essential during branching morphogenesis and cell differentiation within the lung; however, the interactions that result in lung specification from the foregut endoderm, prior to lung bud formation, are poorly understood. In this study, we investigate the tissue requirements and signals necessary for specification of a pulmonary cell fate using embryo tissue explants. We show that NKX2.1, an early transcription factor crucial for lung development, is expressed in the ventral foregut endoderm shortly after albumin and Pdx1, early markers of the liver and pancreas lineages, respectively. Similar to hepatic specification, direct contact of cardiac mesoderm with ventral endoderm is required to induce in vitro expression of NKX2.1 and downstream lung target genes including surfactant protein C and Clara cell secretory protein. In the absence of cardiac mesoderm, ventral foregut endoderm explants respond to exogenous fibroblast growth factor (FGF) 1 and FGF2 in a dose-dependent manner, with lower concentrations activating liver specific genes and higher concentrations activating lung specific genes. This signaling appears to be instructive, as the prospective dorsal midgut endoderm, which predominantly gives rise to the intestinal tract, is competent to respond to FGFs by inducing NKX2.1. Furthermore, the temporal expression and selective inhibition of FGF receptors 1 and 4 present within the endoderm implies that signaling through FGFR4 is involved in specifying lung versus liver. Together, the findings suggest that a concentration threshold of FGFs emanating from the cardiac mesoderm are involved in patterning the foregut endoderm.