Worldwide, the incidence of both preterm births and chronic lung disease of infancy, or bronchopulmonary dysplasia, remains high. Infants with bronchopulmonary dysplasia have larger and fewer alveoli, a lung pathology that can persist into adulthood. Although recent data point to a role for hypoxia-inducible factor-1 alpha (HIF-1 alpha) in mediating pulmonary angiogenesis and alveolarization, the cell-specific role of HIF-1 alpha remains incompletely understood. Thus, we hypothesized that HIF-1 alpha, in a distinct subset of mesenchymal cells, mediates postnatal alveolarization. To test the hypothesis, we generated mice with a cell-specific deletion of HIF-1 alpha by crossing SM22 alpha promoter-driven Cre mice with HIF-1 alpha(flox/flox) mice (SM22 alpha-HIF-1 alpha(-/-)), determined SM-22 alpha-expressing cell identity using single-cell RNA sequencing, and interrogated samples from preterm infants. Deletion of HIF-1 alpha in SM22 alpha-expressing cells had no effect on lung structure at day 3 of life. However, at 8 days, there were fewer and larger alveoli, a difference that persisted into adulthood. Microvascular density, elastin organization, and peripheral branching of the lung vasculature were decreased in SM22 alpha-HIF-1 alpha(-/-) mice, compared with control mice. Single-cell RNA sequencing demonstrated that three mesenchymal cell subtypes express SM22 alpha: myofibroblasts, airway smooth muscle cells, and vascular smooth muscle cells. Pulmonary vascular smooth muscle cells from SM22 alpha-HIF-1 alpha(-/-) mice had decreased angiopoietin-2 expression and, in coculture experiments, a diminished capacity to promote angiogenesis that was rescued by angiopoietin-2. Angiopoietin-2 expression in tracheal aspirates of preterm infants was inversely correlated with overall mechanical ventilation time, a marker of disease severity. We conclude that SM22 alpha-specific HIF-1 alpha expression drives peripheral angiogenesis and alveolarization in the lung, perhaps by promoting angiopoietin-2 expression.