Pulmonary surfactant, a complex material that lines the alveolar surface of the lung, is synthesized in the type II pneumocyte. Surfactant consists largely of phospholipids, of which phosphatidylcholine∗∗∗ is by far the most abundant component, and is mainly responsible for surface activity. Surfactant also contains four unique proteins, surfactant protein (SP)‐A, SP‐B, SP‐C, and SP‐D, which are synthesized in a lung‐specific manner. SP‐A and SP‐D are glycoproteins (M_r ã 30,000‐40,000) whereas SP‐B and SP‐C are small (M_r ã 5,000‐18,000), extremely hydrophobic proteolipids released from large precursors by proteolysis. Synthesis of surfactant lipids and proteins is developmentally regulated in fetal lung and can be accelerated by glucocorticoids and other hormones. Developing fetal lung in vivo and in organ culture has been used extensively to study regulation of surfactant synthesis and gene expression. Glucocorticoids stimulate the rate of fetal lung phosphatidylcholine biosynthesis and the activity of the rate‐regulatory enzyme, choline‐phosphate cytidylyltransferase (CYT). The hormone, however, does not increase the amount of CYT; there is evidence that the increase in activity is mediated by increased fatty biosynthesis due to enhanced expression of the fatty acid synthase gene. Glucocorticoids also regulate expression of the SP‐A, SP‐B, and SP‐C genes in the late gestation fetal lung. Hormone response elements and other cis‐acting regulatory elements have been identified in the 5‐flanking regions of the SP‐A, SP‐B, and SP‐C genes. Surfactant phospholipids are stored in lamellar bodies, secretory granules in the type II cell, and secreted by exocytosis. Lamellar bodies are also rich in SP‐B and SP‐C but there are conflicting data on the cellular distribution of SP‐A. Secretion of SP‐A may be constitutive and occur independently of lamellar bodies. Phosphatidylcholine secretion is a regulated process, and in isolated type II cells it can be stimulated by physiological and other agents that act via at least three signal‐transduction mechanisms. After secretion, surfactant is transformed into tubular myelin, and the lipid and protein components are separated as the lipid is inserted into a monolayer at the air‐liquid interface. The majority of surfactant is removed from the alveolar space by reuptake into the type II cell by mechanisms that may include receptor‐mediated endocytosis. Some components of surfactant are directly recycled into new surfactant whereas other components are degraded.— ‐Rooney, S. A., Young, S. L., Mendelson, C. R. Molecular and cellular processing of lung surfactant. FASEB J. 8: 957‐967; 1994.