Our aim was to determine whether cortisol's effect on alveolar epithelial cell (AEC) phenotypes in the fetus is mediated via a sustained alteration in lung expansion. Chronically catheterized fetal sheep were exposed to 1) saline infusion, 2) cortisol infusion (122-131 days' gestation, 1.5-4.0 mg/day), 3) saline infusion plus reduced lung expansion, or 4) cortisol infusion plus reduced lung expansion. The proportions of type I and II AECs were determined by electron microscopy, and surfactant protein (SP)-A, -B, and -C mRNA levels were determined by Northern blot analysis. Cortisol infusions significantly increased type II AEC proportions (to 38.2 +/- 2.2%), compared with saline-infused fetuses (23.8 +/- 2.4%), and reduced type I AEC proportions (to 59.0 +/- 2.2%), compared with saline-infused fetuses (70.4 +/- 2.4%). Reduced lung expansion also increased type II AEC proportions (to 52.9 +/- 3.5%) and decreased type I AEC proportions (to 34.2 +/- 3.7%), compared with control, saline-infused fetuses. The infusion of cortisol into fetuses exposed to reduced lung expansion tended to further increase type II (to 60.3 +/- 2.1%, P = 0.066) and reduce type I AEC (to 26.6 +/- 2.3%, P = 0.07) proportions. SP-A, -B, and -C mRNA levels changed in parallel with the changes in type II AEC proportions. These results indicate that cortisol alters the proportion of type I and type II AECs via a mechanism unrelated to the degree of fetal lung expansion. However, reductions in fetal lung expansion appear to have a greater impact on the proportion of AECs than cortisol.