While the adverse effects of parental smoking on respiratory health during childhood are well recognized, its potential impact on early lung development is less clear. This review summarizes current evidence on the effect of parental smoking on lung function during infancy. It is difficult to separate the effects of pre- and postnatal exposure, since the majority of mothers who smoke in pregnancy (currently around 30% worldwide) continue to do so thereafter. Nevertheless, measurements undertaken prior to any postnatal exposure have consistently demonstrated significant changes in tidal flow patterns in infants whose mothers smoked in pregnancy. While there is, as yet, no convincing evidence from studies in human infants that smoking during pregnancy is associated with increased airway responsiveness at birth, many studies have demonstrated a reduction in forced expiratory flows (on average by 20%) in infants exposed to parental smoking. While maternal smoking during pregnancy remains the most significant source of such exposure and is likely to be responsible for diminished airway function in early life, continuing postnatal tobacco smoke exposure will increase the risk of respiratory infections, the combination of both being responsible for the two- to fourfold increased risk of wheezing illnesses observed during the first year of life in infants whose parents smoke. These findings emphasize the need to keep infants in a smoke-free environment both before and after birth, not least because of growing awareness that airway function in later life is largely determined by that during foetal development and early infancy.