To determine whether type II pneumocytes isolated from diabetic animals could serve as a useful model for the study of surfactant phospholipid biosynthesis and its regulation, type II pneumocytes were isolated from adult streptozotocin-diabetic rats and placed in short-term primary culture. On a DNA basis, total cellular disaturated phosphatidylcholine (disaturated PC) and phosphatidylglycerol (PG) were decreased 36 and 66%, respectively, in type II cells from diabetic animals. 7 days of insulin treatment of diabetic rats returned the cellular disaturated PC and PG content to control values and increased the total cellular phosphatidylethanolamine (PE) content by 51%. The rates of glucose and acetate incorporation into disaturated PC per unit DNA were reduced 32 and 38%, respectively, in cells isolated from diabetic rats, while glycerol incorporation was increased by 143%. Insulin treatment of diabetic rats returned the glucose and glycerol incorporation rates to control values and increased acetate incorporation into disaturated PC by 66%. These data suggest that the biosynthesis of surfactant is altered by both diabetes mellitus and in vivo insulin treatment.