Pulmonary epithelial cell destruction in mice infected with PR8-A influenza virus has been studied with light and electron microscopy and enzyme histochemistry, and correlated with pulmonary surfactant activity. All epithelial cell types were infected by the virus, resulting in destruction, pneumonitis, and atelectasis by seven to ten days. Pulmonary surfactant activity decreased progressively following onset of infection, and was minimal by seven to ten days. Before types 1 and 2 alveolar pneumocytes regenerated, the regenerating bronchial cells grew peripherally into some of the denuded alveolar ducts and alveoli to form epithelial nodules. Eventually the types 1 and 2 pneumocytes regenerated to cover the alveolar surfaces that were not invaded by bronchial epithelium. This regeneration was associated with increased surfactant activity in the postinfluenzal lesions, suggesting that the type 2 pneumocytes are a source of surfactant.