Surfactant deficiency is a major cause of respiratory failure in newborns. We have investigated the roles of surfactant and positive end-expiratory pressure (PEEP) in the development of a functional residual capacity (FRC) and the distribution of ventilation at birth. Preterm rabbit pups (28 d GA) were delivered and received either saline or surfactant and then ventilated with (3PEEP) or without (0PEEP) 3 cm H2O PEEP (groups: saline/0PEEP, surfactant/0PEEP, saline/3PEEP, surfactant/3PEEP). Lung gas volumes were measured using plethysmography, and the uniformity of ventilation was analyzed using phase contrast (PC) x-ray imaging. Surfactant/0PEEP pups had greater FRCs and the lungs were more uniformly ventilated than saline/0PEEP pups; FRC at inflation 19-21 was 2.46 ± 0.52 mL/kg versus 0.91 ± 0.95 mL/kg (p < 0.05). Saline/3PEEP pups developed an FRC of 7.54 ± 1.68 mL/kg at inflation 19-21 (p < 0.05), but the distribution of ventilation was initially nonuniform. Surfactant/3PEEP pups had an FRC of 8.50 ± 0.80 mL/kg (at inflation 19-21), and the distribution of ventilation was more uniform than with saline/3PEEP (p < 0.05). In ventilated preterm newborn rabbits, PEEP has a greater effect on FRC than surfactant, although the two are additive. Surfactant, administered at birth, markedly improved the uniformity of ventilation irrespective of whether PEEP was applied.