Epidemiologic evidence suggests an association between reports of pneumonia in early life and the subsequent development of diminished lung function. However, no studies are available in which the diagnosis of pneumonia was based on radiologic evidence. Lower respiratory illnesses with or without a radiologically confirmed diagnosis of pneumonia were assessed in a study of 888 children enrolled at birth. Pulmonary function tests, markers of atopy, asthma diagnosis, and prevalence of respiratory symptoms were assessed at different ages between birth and 11 yr. Incidence of pneumonia during the first 3 yr of life was 7.4%. Respiratory syncytial virus was the most frequent agent identified both in children with pneumonia and in those with lower respiratory tract illness (LRI) without pneumonia (36.4% versus 35.6%, respectively). Children with a diagnosis of pneumonia were more likely to have physician-diagnosed asthma and current wheezing at ages 6 and 11 yr than were those who had no LRIs. When compared with children without LRIs, those with a diagnosis of pneumonia had lower levels of maximal flows at FRC at mean age of 2 mo (albeit not significantly) and at age 6 yr, and lower levels of FEV1 and FEF25-75 at age 11 yr. These deficits were independent of known confounders, including wheezing at the time of study, and were partly and significantly reversed after administration of a bronchodilator. We conclude that children with radiologically confirmed pneumonia have diminished airway function that is probably present shortly after birth. These deficits are at least in part due to alterations in the regulation of airway muscle tone.