OBJECTIVE Inhaled corticosteroids (ICS) are commonly used to treat wheezing disorders in children, but few studies have investigated the effect of ICS on lung function in infants. We evaluated the efficacy of inhaled budesonide for decreased specific airway conductance (sGaw) as an indication of bronchial obstruction in very young children with recurrent cough and/or wheeze. PATIENTS, DESIGN AND INTERVENTIONS: Functional residual capacity (FRC) and sGaw of steroid-naive children aged 3-26 months with respiratory symptoms were measured using an infant whole-body plethysmograph. Clinically indicated bronchoscopy was performed in 79% of the patients to exclude anatomical abnormalities before randomisation. Children with abnormal lung function and respiratory symptoms were randomised into two treatment groups, receiving either inhaled budesonide (400 microg/day) or placebo with NebuChamber for 6 weeks. Inhaled terbutaline 0.25 mg/dose was used as a rescue medication. Lung function measurements were repeated after 6 weeks. METHODS Lung function. RESULTS 44 children with a median age of 11.3 months (range 3.7-25.9) completed the study. Median sGaw improved from a z score of -3.6 to -1.2 (p<0.001) in the budesonide group and from -3.2 to -2.6 (p = 0.033) in the placebo group; between group difference p = 0.014. Improvement in sGaw was more pronounced in children with atopy (p = 0.017). Symptom-free days increased in both the budesonide and placebo groups with no difference between groups. CONCLUSIONS Treatment with inhaled budesonide for 6 weeks improved sGaw in young children with chronic cough or wheeze and bronchial obstruction.