Although aberrant alveolar myofibroblasts (AMYFs) proliferation and differentiation are often associated with abnormal lung development and diseases, such as bronchopulmonary dysplasia (BPD), chronic obstructive pulmonary disease (COPD), and idiopathic pulmonary fibrosis (IPF), epigenetic mechanisms regulating proliferation and differentiation of AMYFs remain poorly understood. Protein arginine methyltransferase 7 (PRMT7) is the only reported type III enzyme responsible for monomethylation of arginine residue on both histone and nonhistone substrates. Here we provide evidence for PRMT7’s function in regulating AMYFs proliferation and differentiation during lung alveologenesis. In PRMT7-deficient mice, we found reduced AMYFs proliferation and differentiation, abnormal elastin deposition, and failure of alveolar septum formation. We further shown that oncogene forkhead box M1 (Foxm1) is a direct target of PRMT7 and that PRMT7-catalyzed monomethylation at histone H4 arginine 3 (H4R3me1) directly associate with chromatin of Foxm1 to activate its transcription, and thereby regulate of cell cycle-related genes to inhibit AMYFs proliferation and differentiation. Overexpression of Foxm1 in isolated myofibroblasts (MYFs) significantly rescued PRMT7-deficiency-induced cell proliferation and differentiation defects. Thus, our results reveal a novel epigenetic mechanism through which PRMT7-mediated histone arginine monomethylation activates Foxm1 transcriptional expression to regulate AMYFs proliferation and differentiation during lung alveologenesis and may represent a potential target for intervention in pulmonary diseases.