Background Hyperoxia plays an important role in the genesis of lung injury in preterm infants. Although alveolar type II cells are the main target of hyperoxic lung injury, the exact mechanisms whereby hyperoxia on fetal alveolar type II cells contributes to the genesis of lung injury are not fully defined, and there have been no specific measures for protection of fetal alveolar type II cells. Objective The aim of this study was to investigate (a) cell death response and inflammatory response in fetal alveolar type II cells in the transitional period from canalicular to saccular stages during 65%-hyperoxia and (b) whether the injurious stimulus is promoted by creating an imbalance between pro- and anti-inflammatory cytokines and (c) whether treatment with an anti-inflammatory cytokine may be effective for protection of fetal alveolar type II cells from injury secondary to 65%-hyperoxia. Methods Fetal alveolar type II cells were isolated on embryonic day 19 and exposed to 65%-oxygen for 24 h and 36 h. Cells in room air were used as controls. Cellular necrosis was assessed by lactate dehydrogenase-release and flow cytometry, and apoptosis was analyzed by TUNEL assay and flow cytometry, and cell proliferation was studied by BrdU incorporation. Release of cytokines including VEGF was analyzed by ELISA, and their gene expressions were investigated by qRT-PCR. Results 65%-hyperoxia increased cellular necrosis, whereas it decreased cell proliferation in a time-dependent manner compared to controls. 65%-hyperoxia stimulated IL-8-release in a time-dependent fashion, whereas the anti-inflammatory cytokine, IL-10, showed an opposite response. 65%-hyperoxia induced a significant decrease of VEGF-release compared to controls, and similar findings were observed on IL-8/IL-10/VEGF genes expression. Preincubation of recombinant IL-10 prior to 65%-hyperoxia decreased cellular necrosis and IL-8-release, and increased VEGF-release and cell proliferation significantly compared to hyperoxic cells without IL-10. Conclusions The present study provides an experimental evidence that IL-10 may play a potential role in protection of fetal alveolar type II cells from injury induced by 65%-hyperoxia.