Pulmonary changes induced by bleomycin were investigated in mice by using light and electron microscopy and by phospholipid analysis of the alveolar washings. The damage began in the endothelium of capillaries and was accompanied by interstitial edema and an appearance of enlarged macrophages along with hypertrophy of type II epithelial cells. This condition was followed by degeneration of type I cells. The denuded epithelium appeared to be repaired by two different mechanisms. In areas away from the bronchioles, division of existing type II cells and subsequent transformation into type I cells appeared to be the pattern of epithelial repair. In areas near the bronchiole, downgrowth of bronchiolar undifferentiated cells and subsequent maturation of these cells to type II and type I cells appeared to be prominent. Biochemically, total phospholipids and disaturated lecithin in the alveolar wash increased along with the increase of the alveolar lining layer and the hypertrophy of type II cells. This was considered to be consistent with the view that the hyperactive type II cells secreted more surfactant in the early phase of the experiment.