Pulmonary inflammation and increased production of the inflammatory cytokine IL-1beta are associated with the development of bronchopulmonary dysplasia (BPD) in premature infants. To study the actions of IL-1beta in the fetal and newborn lung in vivo, we developed a bitransgenic mouse in which IL-1beta is expressed under conditional control in airway epithelial cells. Perinatal pulmonary expression of IL-1beta caused respiratory insufficiency that was associated with increased postnatal mortality. While intrauterine growth of IL-1beta-expressing mice was normal, their postnatal growth was impaired. IL-1beta disrupted alveolar septation and caused abnormalities in alpha-smooth muscle actin and elastin deposition in the septa of distal airspaces. IL-1beta disturbed capillary development and inhibited the production of vascular endothelial growth factor in the lungs of infant mice. IL-1beta induced the expression of CXC chemokines KC (CXCL1) and macrophage inflammatory protein-2 (CXCL2) and of CC chemokines monocyte chemotactic protein (MCP)-1 (CCL2) and MCP-3 (CCL7), consistent with neutrophilic and monocytic infiltration of the lungs. IL-1beta caused goblet cell metaplasia and bronchial smooth muscle hyperplasia. Perinatal expression of IL-1beta in epithelial cells of the lung caused a lung disease that was clinically and histologically similar to BPD.