Transforming growth factor-β1 (TGF-β1) is a multifunctional cytokine shown to play a critical role in organ morphogenesis, development, growth regulation, cellular differentiation, gene expression, and tissue remodeling after injury. We examined the effect of exogenously administered TGF-β1 on the expression of surfactant proteins (SPs) and lipids, fatty acid synthetase, and ultrastructural morphology in human fetal lung cultured for 5 days with and without dexamethasone (10 nM). Expression of the type II cell-specific marker surfactant proprotein C (proSP-C), studied by [³⁵S]Met incorporation and immunoprecipitation, increased sevenfold with dexamethasone treatment. TGF-β1 (0.1–100 ng/ml) in the presence of dexamethasone inhibited 21-kDa proSP-C expression in a dose-dependent manner (maximal inhibition 31% of control level at 100 ng/ml). There was no change in [³⁵S]Met incorporation into total protein in any of the treatment groups vs. the control group. In immunoblotting experiments, TGF-β1 blocked culture-induced accumulation of SP-A and SP-B. Under the same conditions, TGF-β1 reduced mRNA content for SP-A, SP-B, and SP-C to 20, 38, and 41%, respectively, of matched control groups but did not affect levels of β-actin mRNA. SP transcription rates after 24 h of exposure to TGF-β1 were reduced to a similar extent (20–50% of control level). In both control and dexamethasone-treated explants, TGF-β1 (10 ng/ml) also decreased fatty acid synthetase mRNA, protein, and enzyme activity and the rate of [³H]choline incorporation into phosphatidylcholine. By electron microscopy, well-differentiated type II cells lining potential air spaces were present in explants cultured with dexamethasone, whereas exposure to TGF-β1 with or without dexamethasone resulted in epithelial cells lacking lamellar bodies. We conclude that exogenous TGF-β1 disrupts culture-induced maturation of fetal lung epithelial cells and inhibits expression of surfactant components through effects on gene transcription.