There is increasing evidence that type II alveolar cells are capable of synthesizing surface active material like that obtained from the airways. However a number of problems remain to be solved before it can be stated conclusively that type II cells synthesize the surface active material of the terminal airspace. Among these problems is that of secretion. A number of previous studies have given evidence of the release of lamellar bodies by merocrine secretion. In this study morphologic evidence is presented which supports the view that secretion of lamellar bodies is accomplished by exocytosis. At the apical surface of type II cells, sites can be found where the limiting membrane of the lamellar body is clearly fused with the type II cell plasma membrane and an open channel exists between the contents of the lamellar body and the alveolar space. At these sites the lamellar contents extrude into the airspace with consequent loss of the highly compact organization of intracellular lamellar bodies. The intactness and continuity of the membranes can be traced for the full extent of the exocytosis site. Freeze-etch replicas of the membranes of type II cells show depressions which may represent the sites of discharged lamellae. In addition, tongue-like folds are seen which could be explained as the extensions of cytoplasm which surround the releasing lamellar body and which may flap over the exocytosis pit after discharge. Micrographs of the alveolar space show disorganized lamellar whorls which appear to be unravelling to produce tubular myelin. In view of the unusually large size and lipid composition of lamellar bodies, a mechanism involving hydration of mucopolysaccharide contents as an aid to expulsion of lamellar contents is suggested.