A study has been made of the consequences of in utero decapitation on the morphological and physiological development of the fetal lung. Fetal rabbits were decapitated in situ at 22 days, without losing any amniotic fluid, and allowed to continue their development with their undamaged littermates as controls. Such decapitation, of course, removes the pituitary and so interferes with adrenal cortical development. Morphological studies showed an interference with lung development in that, although the number of alveolar saccules increased normally, their walls failed to thin. In the decapitated fetuses, a reduction in the number of lamellated bodies per Type II pneumonocyte was found at each age studied; while dense, homogeneous bodies were more numerous. The normal disappearance of glycogen in the Type II pneumonocytes of the decapitated fetuses was retarded. Physiological studies supported these findings. In control fetuses allowed to breathe for a while the Bubble Stability Ratio increased rapidly from day 26 to reach a maximum at 28 days; whereas, in the decapitated ones, bubble stability was not apparent before day 28 and by the 29th day had reached a maximum which was lower than that of the controls. In the control fetuses, lecithin was detected in lung fluid from 26 days on, and in stomach fluid from 29 days. It is argued that lung development must be, at least in part, under the control of the fetus' own pituitary-adrenal axis.