In utero inflammation may accelerate fetal lung maturation but may also play a role in the pathogenesis of chronic lung disease. We examined the impact of endotoxin, a potent proinflammatory stimulus, on structural and functional maturation of preterm sheep lungs. Date bred ewes received 20 mg Escherichia coli endotoxin or saline by ultrasound guided intra-amniotic injection at 119 d gestation. A comparison group of animals received 0.5 mg/kg betamethasone, a known maturational agent, at 118 d gestation. Lambs were delivered by cesarean section at 125 d (term = 150 d) and ventilated for 40 min. Lung function data are reported elsewhere. Total and differential white cell counts were performed on amniotic fluid and fetal lung fluid samples. Morphometric analyses were performed on inflation fixed right upper lobes. Total cell count increased slightly but not significantly in both amniotic fluid and fetal lung fluid. Both endotoxin and betamethasone had similar effects on alveolarization: average alveolar volume increased by approximately 20% and total alveolar number decreased by almost 30%. Both treatments led to thinning of alveolar walls, although this was statistically significant in the betamethasone-treated group only. Although antenatal endotoxin leads to striking improvements in postnatal lung function, this may be at the expense of normal alveolar development.