To determine whether dexamethasone therapy altered the outcome of chronic lung disease in neonates, we conducted a prospective, randomized, placebo-controlled trial. Twenty-one 30-day-old oxygen- and ventilator-dependent infants were enrolled. The mean (+/- SD) birth weight was 808.1 +/- 141 gm and the mean gestational age was 26.0 +/- 1.5 weeks. There were 17 black and 12 male infants. Twelve received placebo and nine received dexamethasone. Neither severity of early illness, birth weight, gestational age, age when treated, gender and race distribution, nor frequency of diuretic therapy differed significantly between groups. The age at extubation, 57.2 days (placebo) versus 39.4 days (steroid), was significantly different. The average oxygen requirements of the steroid-treated patients was significantly lower than for placebo-treated patients during the first 10 days of treatment. There were no differences for placebo-versus steroid-treated patients in age when weaned to room air (95.5 days vs 74.9 days), age at discharge (119 days vs 111 days), or number of deaths (2 (17%) vs 1 (11%]. Dexamethasone therapy was associated with a significantly increased incidence of hyperglycemia (89% vs 8%) but did not influence the incidence of hypertension, intracranial hemorrhage, infection, or retinopathy of prematurity. The steroid-treated patients had a significant delay in weight gain during the first 3 weeks of treatment but recovered by discharge. Our results suggest that dexamethasone produces acute improvement in infants with lung disease but no long-term effect on mortality rate, duration of oxygen requirement or age at discharge.