Branching morphogenesis transforms an epithelial sheet into a tubular network with distinct features regarding the length and diameter of individual tubes. Branching is controlled by several signaling pathways, but the molecular consequences of these pathways in the responding cells are poorly understood.We have undertaken a detailed characterization of cell rearrangements during tracheal branching morphogenesis in Drosophila embryos with a GFP fusion protein labeling the adherens junctions (AJs) and high-resolution live imaging. To analyze the branching process at the cellular level, we further developed an imaging approach that allows us to follow single cells during the branching process. We find that controlled cell intercalation, which requires extensive AJ remodeling, is key to the formation of tracheal branches of different cellular complexities. In particular, most branches consist of tubes with individual cells wrapped around the lumen. These branches form through cell intercalation, which requires the transformation of most of the initial intercellular AJs into autocellular AJs. We propose a step-wise model explaining how this AJ remodeling occurs and use this model to better understand defects in various mutants. We find that Dpp and Wnt signaling control cell intercalation by regulating the expression of Spalt, a zinc finger transcription factor; Spalt inhibits intercalation, leading to the formation of large, multicellular tubes.Tracheal morphogenesis is regulated by an interplay of different signaling systems that control cell migration and cell intercalation, respectively. Only the combined action of these signaling systems allows efficient branch elongation and the formation of morphologically distinct branches.