Scanning and transmission electron microscopy were used to study the epithelial surface development in fetal rabbit lungs. At 20 to 22 days of gestation, microvilli of the epithelial cells were scarce on the luminal surface but were concentrated along the cellular borders which had well-formed apical tight junctions and desmosomes. The epithelial intercellular spaces were frequently wide, and the basement membrane was thin and discontinuous, suggesting that transport or exchange of metabolites across the epithelium occurred easily. Attenuation of cytoplasm started at 26 days of gestation, and the cytoplasmic processes overlapped each other in various ways, so that both autonomous expansion and passive forces may be involved in attenuation of the pulmonary epithelial cells. The lining cells of the alveolus-like structures during late gestation and in the newborn rabbit showed pits with 0.1 to 0.5 mu diameters which probably reflected active production and release of osmiophilic bodies in the type 2 cells and increased micropinocytosis in the type 1 cell. No "gaps" between the epithelial cells were found to account for the resorption of lung liquid.