This study characterizes the biochemical and physiological effects of prolonged exposure of rabbits to sublethal (60%) O2 concentrations. After 3 wk in 60% O2, rabbits had arterial P(O2) values of 69 ± 2 vs. 79 ± 3 Torr for control animals (means ± SE; P < 0.05) and a small but significant rise in pulmonary wet weight-to-dry weight ratios (5.6 ± 0.3 vs. 4.1 ± 0.3; P < 0.05). Alevolar permeability to solute, lung compliance, total lung capacity, and alveolar protein levels were unchanged from control, but the amount of lavagable alveolar phospholipid was 90% higher in the O2-exposed rabbits. The lipid biosynthetic ability of isolated alveolar type II pneumocytes, measured by radiolabeled precursor [3H]choline incorporation, indicated that type II cells isolated from hyperoxic animals synthesized phosphatidylcholine at a rate 110% higher than those from control animals. Laser flow cytometric analyses of isolated type II cells showed a significant increase in type II cell diameter, based on time-of-flight measurements, and an average 60% increase in lipid content per cell, based on phosphine-3R fluorescence intensity. These findings indicate that exposure to 60% O2 for 21 days results in a decrease in arterial P(O2) and induces several important biochemical and morphological changes in alveolar type II pneumocytes.