We report a previously unrecognized late complication of allograft lung transplantation - persistent recurrent atelectasis of the transplanted lung. The patient developed sudden, severe respiratory distress about 2 yr after a right lung transplant, because of acute atelectasis of her transplanted lung. Multiple transbronchial biopsies at the time revealed minimal inflammation and no evidence of rejection. She was treated with surfactant replacement therapy, and her collapsed lung fully expanded following surfactant installation. To eliminate the possibility of acquired deficiency of surfactant lipids or proteins, ultrastructural examination and immunostains for surfactant proteins were performed in a transbronchial lung biopsy. No deficiency of surfactant lipids or proteins was found. On ultrastructural examination of the lung biopsy, the number of Type II cells per alveolus and the number of lamellar bodies per square micron of Type II cell cross-sectional area was increased compared with an age-matched control. We conclude that synthesis of surfactant lipids and proteins was unimpaired and because of the patient's response to surfactant replacement therapy, that the increase in number of lamellar bodies could reflect a compensatory mechanism for a surfactant functional defect. The patient later developed breast carcinoma to which she succumbed. We raise the possibility that the functional surfactant defect is a hitherto unrecognized non-metastatic manifestation of malignancy.