To isolate and demonstrate the effect of insulin on pulmonary surfactant in vivo, islet cell hyperplasia and hyperinsulinemia were produced in fetal rabbits by the litter reduction technique without concomitant hormonal or metabolic changes in mother or fetus. This produced fetuses which were heavier than controls (37.1 vs. 31.5 g), with two-fold higher insulin levels (48.1 vs. 24.3 microU/ml). The fetal weight correlated directly with the insulin level, while the L/S ratio was found to correlate inversely with the insulin level. This inhibitory effect may be mediated by any of several mechanisms which await further investigation.