Alveolar development comprises the transition of lung architecture from saccules to gas-exchange units during late gestation and early postnatal development. Exposure to hyperoxia disrupts developmental signaling pathways and causes alveolar hypoplasia as seen in bronchopulmonary dysplasia affecting preterm human newborns. Expanding literature suggests that epigenetic changes caused by environmental triggers during development may lead to heritable changes in gene expression. Given recent data on altered histone deacetylase (HDAC) activity in lungs of humans and animal models with airspace enlargement/emphysema, we hypothesized that alveolar hypoplasia from hyperoxia exposure in neonatal mice is a consequence of cell cycle arrest and reduced HDAC activity and up-regulation of the cyclin-dependent kinase inhibitor, p21. We exposed newborn mice to hyperoxia and compared lung morphologic and epigenetic changes to room air controls. Furthermore, we pretreated a subgroup of animals with the macrolide antibiotic azithromycin (AZM), known to possess antiinflammatory properties. Our results showed that hyperoxia exposure resulted in alveolar hypoplasia and was associated with decreased HDAC1 and HDAC2 and increased p53 and p21 expression. Furthermore, AZM did not confer protection against hyperoxia-induced alveolar changes. These findings suggest that alveolar hypoplasia caused by hyperoxia is mediated by epigenetic changes affecting cell cycle regulation/senescence during lung development.