It is generally believed that lung alveoli contain an extracellular aqueous layer of surfactant material, which is allegedly required to prevent alveolar collapse at small lung volume; the surfactant's major constituent is a fully saturated phospholipid, referred to as dipalmitoyl lecithin or DPL. I herein demonstrate that the surfactant hypothesis of alveolar stability is fundamentally wrong. Although DPL is synthesized inside type II epithelial cells and stored in the typical inclusion bodies therein and lowers surface tension to zero in the surface balance, there is no evidence to the effect that type II cells secrete the DPL surfactant into the aqueous intra-alveolar layer which is shown by electron microscopy in support of the surfactant theory. To the contrary, all the evidence indicates that, when seen, such an extracellular layer is an artifact. This is probably upon the damage glutaraldehyde inflicts onto alveolar structures during fixation of air-inflated lung tissue. Furthermore, several cogent arguments invalidate the belief that an extracellular layer of DPL and serum proteins is present in the alveoli of normal lung. In light of these arguments, a surface tension role of DPL in alveolar stability is excluded. Three hypotheses for an alternative role of DPL in respiration mechanics are proposed. They are: (a) alveolar clearance by viscolytic and surfactant action (bubble or foam formation) on the aqueous systems which are present in lung alveoli during edema and in prenatal life and which would otherwise be impervious to air; (b) homeostasis of blood palmitate in normal lung; (c) modulation of the elasticity of terminal lung tissue by the intact inclusion bodies and parts thereof inside type II cells in normal lung.