The rapid transit from hypoxia to normoxia in the lung that follows the first breath in newborn mice coincides with alveolar macrophage (AM) differentiation. However, whether sensing of oxygen affects AM maturation and function has not been previously explored. We have generated mice whose AMs show a deficient ability to sense oxygen after birth by deleting Vhl, a negative regulator of HIF transcription factors, in the CD11c compartment (CD11c Delta Vhl mice). VHL-deficient AMs show an immature-like phenotype and an impaired self-renewal capacity in vivo that persists upon culture ex vivo. VHL-deficient phenotype is intrinsic in AMs derived from monocyte precursors in mixed bone marrow chimeras. Moreover, unlike control Vhl(fl/fl), AMs from CD11c Delta Vhl mice do not reverse pulmonary alveolar proteinosis when transplanted into Csf2rb(-/)(-) mice, demonstrating that VHL contributes to AM-mediated surfactant clearance. Thus, our results suggest that optimal AM terminal differentiation, self-renewal, and homeostatic function requires their intact oxygen-sensing capacity.