Acute lung injury and compromised alveolar development characterize bronchopulmonary dysplasia (BPD) of the premature neonate. High levels of keratinocyte growth factor (KGF), a cell-cell mediator with pleiotrophic lung effects, are associated with low BPD risk. KGF decreases mortality in hyperoxia-exposed newborn rodents, a classic model of injury-induced impaired alveolarization, although the pulmonary mechanisms of this protection are poorly defined. These were explored through in vitro and in vivo approaches in the rat. Hyperoxia decreased by 30% the rate of wound closure of a monolayer of fetal alveolar epithelial cells, due to cell death, which was overcome by recombinant human KGF (100 ng/ml). In rat pups exposed to >95% O2 from birth, increased viability induced by intraperitoneal injection of KGF (2 microg/g body wt) every other day was associated with prevention of neutrophil influx in bronchoalveolar lavage (BAL), prevention of decreases in whole lung DNA content and cell proliferation rate, partial prevention of apoptosis increase, and a markedly increased proportion of surfactant protein B-immunoreactive cells in lung parenchyma. Increased lung antioxidant capacity is likely to be due in part to enhanced CAAT/enhancer binding protein alpha expression. By contrast, KGF neither corrected changes induced by hyperoxia in parameters of lung morphometry that clearly indicated impaired alveolarization nor had any significant effect on tissue or BAL surfactant phospholipids. These findings evidence KGF alveolar epithelial cell protection, enhancing effects on alveolar repair capacity, and anti-inflammatory effects in the injured neonatal lung that may account, at least in part, for its ability to reduce mortality. They argue in favor of a therapeutic potential of KGF in the injured neonatal lung.