Persistent mild hyperketonemia is a common finding in neonatal rats and human newborns, but the physiological significance of elevated plasma ketone concentrations remains poorly understood. Recent advances in ketone metabolism clearly indicate that these compounds serve as an indispensable source of energy for extrahepatic tissues, especially the brain and lung of developing rats. Another important function of ketone bodies is to provide acetoacetyl-CoA and acetyl-CoA for synthesis of cholesterol, fatty acids, and complex lipids. During the early postnatal period, acetoacetate (AcAc) and beta-hydroxybutyrate are preferred over glucose as substrates for synthesis of phospholipids and sphingolipids in accord with requirements for brain growth and myelination. Thus, during the first 2 wk of postnatal development, when the accumulation of cholesterol and phospholipids accelerates, the proportion of ketone bodies incorporated into these lipids increases. On the other hand, an increased proportion of ketone bodies is utilized for cerebroside synthesis during the period of active myelination. In the lung, AcAc serves better than glucose as a precursor for the synthesis of lung phospholipids. The synthesized lipids, particularly dipalmityl phosphatidylcholine, are incorporated into surfactant, and thus have a potential role in supplying adequate surfactant lipids to maintain lung function during the early days of life. Our studies further demonstrate that ketone bodies and glucose could play complementary roles in the synthesis of lung lipids by providing fatty acid and glycerol moieties of phospholipids, respectively. The preferential selection of AcAc for lipid synthesis in brain, as well as lung, stems in part from the active cytoplasmic pathway for generation of acetyl-CoA and acetoacetyl-CoA from the ketone via the actions of cytoplasmic acetoacetyl-CoA synthetase and thiolase.