Recent data suggest that exogenous retinoic acid (RA), the biologically active derivative of vitamin A, can induce alveolar regeneration in a rat model of experimental emphysema. Here, we describe a mouse model of disrupted alveolar development using dexamethasone administered postnatally. We show that the effects of dexamethasone are concentration dependent, dose dependent, long lasting and result in a severe loss of alveolar surface area. When RA is administered to these animals as adults, lung architecture and the surface area per unit of body weight are completely restored to normal. This remarkable effect may be because RA is required during normal alveolar development and administering RA re-awakens gene cascades used during development. We provide evidence that RA is required during alveologenesis in the mouse by showing that the levels of the retinoid binding proteins, the RA receptors and two RA synthesizing enzymes peak postnatally. Furthermore, an inhibitor of RA synthesis, disulphiram, disrupts alveologenesis. We also show that RA is required throughout life for the maintenance of lung alveoli because when rats are deprived of dietary retinol they lose alveoli and show the features of emphysema. Alveolar regeneration with RA may therefore be an important novel therapeutic approach to the treatment of respiratory diseases characterized by a reduced gas-exchanging surface area such as bronchopulmonary dysplasia and emphysema for which there are currently no treatments.