Pulmonary surfactant levels within the alveoli are tightly regulated to maintain lung volumes and promote efficient gas exchange across the air/blood barrier. Quantitative and qualitative abnormalities in surfactant are associated with severe lung diseases in children and adults. Although the cellular and molecular mechanisms that control surfactant metabolism have been studied intensively, the critical molecular pathways that sense and regulate endogenous surfactant levels within the alveolus have not been identified and constitute a fundamental knowledge gap in the field. In this study, we demonstrate that expression of an orphan G protein-coupled receptor, GPR116, in the murine lung is developmentally regulated, reaching maximal levels 1 day after birth, and is highly expressed on the apical surface of alveolar type I and type II epithelial cells. To define the physiological role of GPR116 in vivo, mice with a targeted mutation of the Gpr116 locus, Gpr116(Δexon17), were generated. Gpr116(Δexon17) mice developed a profound accumulation of alveolar surfactant phospholipids at 4 weeks of age (12-fold) that was further increased at 20 weeks of age (30-fold). Surfactant accumulation in Gpr116(Δexon17) mice was associated with increased saturated phosphatidylcholine synthesis at 4 weeks and the presence of enlarged, lipid-laden macrophages, neutrophilia, and alveolar destruction at 20 weeks. mRNA microarray analyses indicated that P2RY2, a purinergic receptor known to mediate surfactant secretion, was induced in Gpr116(Δexon17) type II cells. Collectively, these data support the concept that GPR116 functions as a molecular sensor of alveolar surfactant lipid pool sizes by regulating surfactant secretion.