Intrahepatic cholestasis of pregnancy (ICP) is associated with adverse neonatal survival and is estimated to impact between 0.4 and 5% of pregnancies worldwide. Here we show that maternal cholestasis (due to Abcb11 deficiency) produces neonatal death among all offspring within 24 h of birth due to atelectasis-producing pulmonary hypoxia, which recapitulates the neonatal respiratory distress of human ICP. Neonates of Abcb11-deficient mothers have elevated pulmonary bile acids and altered pulmonary surfactant structure. Maternal absence of Nr1i2 superimposed on Abcb11 deficiency strongly reduces maternal serum bile acid concentrations and increases neonatal survival. We identify pulmonary bile acids as a key factor in the disruption of the structure of pulmonary surfactant in neonates of ICP. These findings have important implications for neonatal respiratory failure, especially when maternal bile acids are elevated during pregnancy, and highlight potential pathways and targets amenable to therapeutic intervention to ameliorate this condition.