The pulmonary lipofibroblast is located in the alveolar interstitium and is recognizable by its characteristic lipid droplets. During alveolar development it participates in the synthesis of extracellular matrix structural proteins, such as collagen and elastin, and as an accessory cell to the type II pneumocyte, in the synthesis of surfactant. The lipofibroblast contains cortical contractile filaments and is thereby related to the contractile interstitial cells that are normally found at the alveolar septal tips and after lung injury. The morphologic, immunologic, and biochemical characteristics of the lipofibroblast and its probable physiologic functions are reviewed. The retinoid and lipid metabolism of the lipofibroblast is compared with that of the hepatic lipocyte and the adipocyte. Although the functions of the lipofibroblast remain incompletely characterized, this cell type is emerging as an important contributor to pulmonary alveolar septal development.