We have previously suggested that the fistula tract in esophageal atresia with tracheoesophageal fistula (EA/TEF) arises from a trifurcation of the embryonic lung bud. Thus, it appears to be a respiratory-derived structure, and expresses the lung-specific transcription factor TTF-1 in its epithelium. The fistula tract does not give rise to lungs like the other branches from the bud. It grows caudally until it fistulizes with the stomach. We hypothesized that epithelial-mesenchymal interactions (EMI) dictate the differential pattern of growth of the respiratory-derived fistula tract in EA/TEF. EA/TEF was induced in rat embryos via prenatal exposure to adriamycin. Microdissection was performed on E13.5 embryos to isolate developing lung bud, fistula tract, or esophagus from adriamycin-treated or control animals, respectively. The mesenchyme and epithelium from each of these foregut structures were separated. The individual epithelia were recombined with each of the various mesenchymes and grown in culture. They were assayed for relative degrees of branching. Isolated lung-bud epithelia (LBE) or fistula epithelium were also cultured in Matrigel with exogenous fibroblast growth factors (FGF) and subsequently assayed for branching. The fistula-tract mesenchyme relatively inhibited branching of lung epithelium. The epithelium of the fistula tract could be induced to branch by non-fistula (lung or esophageal) mesenchyme. The fistula-tract and adriamycin-treated LBE both branched in response to FGF1. In contrast, neither responded to FGF7 or FGF10. EMI are defective in the developing EA/TEF. The inability to respond to FGF7 and FGF10 suggests an epithelial defect involving the receptor FGF2R-IIIb, to which these mesenchymal factors obligately bind. Thus, the mesenchyme around the developing fistula tract may lack an FGF branching morphogen(s), such as FGF1. Hence, this mesenchyme is unable to induce branching of respiratory epithelia and allows the middle branch of the embryonic tracheal trifurcation to grow caudally as an unbranched tube until it fistulizes into the stomach.