This paper summarizes current knowledge and advances speculation about the formation of the neuroendocrine system of mammalian lungs (comprising uninnervated solitary and clustered small‐granule cells and innervated neuroepithelial bodies). It relates the initial appearance of neuroendocrine cells to regulation of mitotic activity in the epithelium during the development of the lung and pays special attention to the later ingrowth of nerves that converts some of them into neuroepithelial bodies, structures considered ideally adapted to function as chemoreceptors. A few original observations from ongoing immunohistochemical, electron microscopic, and analytical studies have been included here and there to point the discussion. The neuroendocrine cells are derived from undifferentiated precursors present in the endodermal pulmonary epithelium. At an early pseudoglandular stage of lung development these precursors begin to differentiate into neuroendocrine small‐granule cells, commencing in the larynx and upper trachea, and expanding centrifugally into pulmonary airways almost as rapidly as these are laid down. Subsequently many of the intrapulmonary small‐granule cell clusters become innervated. This event, the delayed appearance of small‐granule cells synthesizing other than the dominant peptides and amines (calcitonin gene‐related peptide and serotonin in rodents, gastrin‐releasing peptide and serotonin in human beings), and other regional adjustments yield the population distribution present in the lungs of adults. Neuroendocrine cell precursors normally differentiate into typical serotonin‐ or peptide‐synthesizing small‐granule cells without requiring direct contact by nerves, and dissociated cells from a previously innervated population continue to exhibit physiological characteristics of oxygen sensors despite the loss of contact with nerves. Development of the innervation occurs in stages. Small‐granule cell clusters are reached first by ganglion cells derived from pulmonary neuroblasts and later on by processes of extrinsic sensory nerves. The latter not only convey information to the central nervous system but also serve in a variety of ways to extend the neuroepithelial bodies' sphere of influence within the lung itself. Microsc. Res. Tech. 37:43–61, 1997. © 1997 Wiley‐Liss, Inc.