We have developed a relatively simple and reproducible method for the isolation and culture of both differentiated and undifferentiated type II cells from fetal rat lung. The technique involves an initial period of explant culture in serum and hormone free medium, followed by enzymatic dissociation of the explants, differential adhesion to remove fibroblasts, incubation of the cell pellet to promote aggregation of the type II cells and monolayer culture of the type II cells. The type II cells form clusters which are surrounded by scattered fibroblasts. When the technique was performed with three differential adhesion steps, cultures contained 86.0 +/- 1.4% type II cells. To obtain a higher degree of purity and greater yield, two differential adhesions followed by gentle trypsinization of the cultures which selectively removes the isolated fibroblasts was performed. This resulted in cultures with 89.4 +/- 1.7% type II cells. The differentiated fetal type II cell cultures were prepared from 19-day fetal rat lungs which were initially maintained in explant culture for 48 h. These differentiated cells demonstrated the characteristic morphologic features of type II cells including lamellar bodies and microvilli. Undifferentiated fetal cells were prepared in a similar manner from 18-day fetal rat lung maintained in explant culture for 24 h. These cells did not contain intracellular osmiophilic granules; the appearance of these granules could, however, be induced by hormones. For this reason they are considered to be pre-type II cells. The viability of the cultured cells was 97%. Both the differentiated and undifferentiated fetal type II cells specifically bound the Maclura pomifera lectin, a type II cell surface marker. The phospholipid profile of the fetal cells was similar to that of adult rat type II cells; the differentiated fetal cells, however, synthesized less phosphatidylcholine than the adult cells did, but more than the undifferentiated fetal cells. The differentiated fetal cells secreted phosphatidylcholine at a basal rate of 0.6% +/- 0.1% during a 90-min incubation. There was dose-dependent stimulation of phosphatidylcholine secretion after exposure to terbutaline. Maximum stimulation (76%) was observed at a concentration of 10 microM. This culture system provides a valuable model for studies of the maturation of the undifferentiated fetal type II cell and surfactant metabolism and secretion in the differentiated fetal type II cell.