Three fetal lambs underwent phrenic nerve section between Days 99 and 104 of gestation, and 2 twins of the experimental animals underwent sham operation at the same time. When they were killed at 135 to 137 days of gestation, the experimental animals had lower specific lung weights (g/kg) and lung volumes (ml/kg) and had delayed lung development by subjective microscopy. Light microscopic morphometry showed significantly less volume proportion of potential gas-exchanging air spaces, less parenchyma, and more gas-exchanging wall. Scanning electron microscopy confirmed these findings and also showed that the transition zone between conducting and gas-exchanging areas was less sharp in the experimental animals, attributed to diminished alveolarization of distal conducting airways. Transmission electron microscopy, together with morphometry, showed a diminished maturation of alveolar Type II cells, with fewer osmiophilic lamellar bodies and more glycogen. The number of mesenchymal-Type II cell interconnections was not altered. Maturation of bronchiolar epithelium was not affected, and mesenchymal-epithelial connections were not observed. We conclude that bilateral phrenic nerve section not only diminishes lung growth, but also diminishes intrauterine maturation of the alveolar well. Maturation of bronchiolar epithelium may not be affected by fetal respiration.