1. The purpose of the investigation was to characterize the luminal membrane and the paracellular pathway of rat lung alveolar epithelium. Experiments were performed on lungs in situ instilled with isotonic, buffered Ringer solution and perfused with blood from a donor rat using cross-circulation technique. 2. The rate of active Na+ transport was 4.4 pmol/(cm2s). The fluid absorption was 156 nl/s, and was unaffected by the presence of protein in the instillate (166 nl/s). In the absence of Na+, fluid absorption was zero. Amiloride (10(-3) M) reduced fluid absorption by 60%. Amiloride, combined with absence of D-glucose, arrested fluid absorption completely. Phloridzin at the luminal side reduced fluid absorption whilst phloretin had no effect. Amiloride together with phloridzin (10(-3) M) also arrested absorption. Thus, there are two entry systems for Na+ in the luminal membrane: Na+ channels and a Na+-D-glucose symport. These results show that alveolar fluid absorption is due to cellular activity. 3. Substitution of Cl- with gluconate not only stopped fluid absorption, but led to slight reversal of net fluid movement. 4. Passive unidirectional flux of Na+, determined with 22Na+, was 9.9 pmol/(cm2s) and that of Cl-, determined with 36Cl-, was 12.4 pmol/(cm2s). These fluxes were based on an assumed alveolar surface area of 5000 cm2. Transference numbers calculated from these figures are close to those in free solution, suggesting a neutral or weakly charged intercellular junctional pathway. The D-mannitol permeability in the paracellular pathway was 1.7 X 10(-8) cm/s. 5. It is a consequence of the proposed mechanism for fluid absorption that it becomes inoperative if the normally high reflexion coefficients for Na+ and Cl- are lowered in pathological states. In such conditions pulmonary oedema may develop depending on the net balance of passive mechanical and colloid-osmotic forces. 6. An explanation of the reversal of fluid transport at the time of birth is presented.