BACKGROUND Sustained inflation (SI) at birth facilitates establishment of functional residual capacity (FRC) in the preterm lung, but the ideal lung recruitment strategy is unclear. We have compared the effect of SI and a stepwise positive end-expiratory pressure (PEEP; SEP) strategy in a preterm model. METHODS 127 d gestation lambs received either 20-s SI (n = 9) or 2 cmH2O stepwise PEEP increases to 20 cmH2O every 10 inflations, and then decreases to 6 cmH2O (n = 10). Ventilation continued for 70 min, with surfactant administered at 10 min. Alveolar-arterial oxygen gradient (AaDO2), compliance (C(dyn)), end-expiratory thoracic volume (EEVRIP; respiratory inductive plethysmography), and EEV and C(dyn) in the gravity-dependent and nondependent hemithoraces (electrical impedance tomography) were measured throughout. Early mRNA markers of lung injury were analyzed using quantitative real-time PCR. RESULTS From 15 min of life, AaDO2 was lower in SEP group (P < 0.005; two-way ANOVA). SEP resulted in higher and more homogeneous C(dyn) (P < 0.0001). Mean (SD) EEVRIP at 5 min was 18 (9) ml/kg and 6 (5) ml/kg following SEP and SI, respectively (P = 0.021; Bonferroni posttest); this difference was due to a greater nondependent hemithorax EEV. There was no difference in markers of lung injury. CONCLUSIONS An SEP at birth improved gas exchange, lung mechanics, and EEV, without increasing lung injury, compared to the SI strategy used.