Intermittent and sustained hypoxia is a frequent clinical problem in newborns. Hypoxic effects on pulmonary epithelial proliferation, cytodifferentiation and function are not well characterized. We previously showed that hypoxia ↑s cell loss and ↓s proliferation and expression of surfactant proteins (SP-A, SP-B) in pulmonary H441 cells. The current studies address the effects of graded hypoxia on H441, A549, and rat fetal lung isolated type II cell surfactant phospholipid and protein synthesis and examine mechanisms of hypoxia-mediated epithelial cell cycle progression and apoptosis. We also tested if normoxic recovery following exposure to graded hypoxia can reverse hypoxic changes in surfactant synthesis, lung-specific gene expression and cell cycle kinetics. Apoptosis and cell cycle progression were measured by DNA flow cytometry and RNase protection assay (RPA) for apoptosis regulatory genes and cyclin-dependent kinase (cdk) inhibitors. Surfactant phospholipid was assayed by 3H-choline incorporation into saturated phosphatidylcholine (DPPC); SP-B was assayed by northern blot. Compared to controls (21% O2), 24h exposure to graded hypoxia(7%,3%,1%) reduced 3H-choline incorporation into DPPC in a dose-dependent manner in H441s (60%,71%,75%; p<.001), A549s (13%,34%,53%; p<.005), and TII cells (52%, 59%, 68%; p<.001). 24h recovery in 21% O2 following hypoxia only partially reversed the observed ↓s in DPPC production or in SP-B mRNA (H441) levels. We determined that hypoxia slowed cell growth, apparently by blocking S phase cell progression into G2 and/or by activating S phase transit into apoptosis. Hypoxia induced epithelial cell apoptosis (3.5 fold after 24h in 7% O2; 10 fold in 1% O2). 24h recovery in normoxia completely reversed prior hypoxic activation of apoptosis. Hypoxia transiently ↑d expression of p53 and of Mch3/ICE-LAP6, but not other ICE/Ced-3-like apoptotic cysteine proteases; the G2 cell cycle block appeared to be driven by hypoxic dose-dependent ↑s in the cdk inhibitors, p27 and p21. We conclude that hypoxia ↓s pulmonary surfactant production, blocks epithelial cell proliferation and activates apoptosis. A period of normoxic recovery reversed the hypoxia-induced alterations in cell proliferation and apoptosis but did not completely reverse effects on epithelial cell function. These findings may be relevant for the observations that pulmonary functional effects of hypoxia persist after the hypoxic episode(s). We currently are investigating the mechanisms of oxygen sensing and transcriptional regulation in lung epithelium.