Type II epithelial cells are essential for lung development and remodeling, as they are precursors for type I cells and can produce vascular mitogens. Although type II cell proliferation takes place after hyperoxia, it is unclear why alveolar remodeling occurs normally in adults whereas it is permanently disrupted in newborns. Using a line of transgenic mice whose type II cells could be identified by their expression of enhanced green fluorescent protein and endogenous expression of surfactant proteins, we investigated the age-dependent effects of hyperoxia on type II cell proliferation and alveolar repair. In adult mice, type II cell proliferation was low during room air and hyperoxia exposure but increased during recovery in room air and then declined to control levels by day 7. Eight weeks later, type II cell number and alveolar compliance were indistinguishable from those in room air controls. In newborn mice, type II cell proliferation markedly increased between birth and postnatal day 7 before declining by postnatal day 14. Exposure to hyperoxia between postnatal days 1 and 4 inhibited type II cell proliferation, which resumed during recovery and was aberrantly elevated on postnatal day 14. Eight weeks later, recovered mice had 70% fewer type II cells and 30% increased lung compliance compared with control animals. Recovered mice also had higher levels of T1α, a protein expressed by type I cells, with minimal changes detected in genes expressed by vascular cells. These data suggest that perinatal hyperoxia adversely affects alveolar development by disrupting the proper timing of type II cell proliferation and differentiation into type I cells.