We determined the effects in preterm lambs of endotoxin-induced inflammation at early gestational ages on lung function and structure and on the surfactant system. Pregnant ewes were randomized to one of five intra-amniotic endotoxin (Escherichia coli 055:B5) groups: 1 mg injected at 60 days of gestation, 1 mg at 80 days, 1 mg at 100 days, 1 mg at 60 days plus 100 days, or 0.6 mg/ day infused from Day 80 to Day 108. Control lambs received saline treatments. At 125 days, lung function was improved in all endotoxin groups. Marked increases in saturated phosphatidylcholine in lung tissue but not alveolar lavage samples were seen in all endotoxin groups except the 60- plus 100-day group. Surfactant protein mRNA and protein pool sizes were affected differently according to the timing of endotoxin treatment, but a large increase in the amount of mature surfactant protein B in alveolar lavage samples was observed in all endotoxin groups. Lung-to-body weight ratio, alveolar number, total surface area, and alveolar wall thickness were reduced by 80- to 108-day endotoxin. Intra-amniotic inflammatory stimuli in early gestation can alter pulmonary development, with the net effect of improving preterm lung function, despite changes in surfactant and lung growth that are similar to changes in the lungs of ventilated animals developing bronchopulmonary dysplasia.