Airways of the peripheral lung are prone to closure at low lung volumes. Deficiency or dysfunction of pulmonary surfactant during various lung diseases compounds this event by destabilizing the liquid lining of small airways and giving rise to occluding liquid plugs in airways. Propagation of liquid plugs in airways during inflation of the lung exerts large mechanical forces on airway cells. We describe a microfluidic model of small airways of the lung that mimics airway architecture, recreates physiologic levels of pulmonary pressures, and allows studying cellular response to repeated liquid plug propagation events. Substantial cellular injury happens due to the propagation of liquid plugs devoid of surfactant. We show that addition of a physiologic concentration of a clinical surfactant, Survanta, to propagating liquid plugs protects the epithelium and significantly reduces cell death. Although the protective role of surfactants has been demonstrated in models of a propagating air finger in liquid-filled airways, this is the first time to study the protective role of surfactants in liquid plugs where fluid mechanical stresses are expected to be higher than in air fingers. Our parallel computational simulations revealed a significant decrease in mechanical forces in the presence of surfactant, confirming the experimental observations. The results support the practice of providing exogenous surfactant to patients in certain clinical settings as a protective mechanism against pathologic flows. More importantly, this platform provides a useful model to investigate various surface tension-mediated lung diseases at the cellular level.