These studies show that very soon after exposure of canine lungs to crude papain mixed with a marker (India ink), the alveolar surface-active lining was both morphologically and functionally altered, and alveolar macrophages were destroyed in significant numbers. These changes occurred before other identifiable major alterations. The morphologic changes were characterized by replacement of the normal alveolar surface lining by an amorphous material adhering to the alveolar surfaces and penetrating the pores of Kohn, which were significantly enlarged. Type II epithelial cells and alveolar macrophages were increased in number, with a significant proportion of the latter observed to be disintegrating. Polymorphonuclear leukocytes were also noted in increased numbers, but this was also observed in control lungs (instilled only with saline plus India ink). Functionally the alveolar surface lining as studied in lung extracts showed an abnormal stability index after either in vivo or in vitro exposure to crude papain. These findings suggest that the early effects of this exogenous protease on the lung are interrelated, alveolar surface lining injury appearing to set the stage for accelerated macrophage lysis, with the probable release of phagocytosed exogenous protease as well as intracellular endogenous proteases. These events may represent early steps in the pathogenesis of experimental papain-induced pulmonary emphysema.