Supplemental oxygen used to treat infants born prematurely disrupts angiogenesis and is a risk factor for persistent pulmonary disease later in life. Although it is unclear how neonatal oxygen affects development of the respiratory epithelium, alveolar simplification and depletion of type II cells has been observed in adult mice exposed to hyperoxia between postnatal Days 0 and 4. Because hyperoxia inhibits cell proliferation, we hypothesized that it depleted the adult lung of type II cells by inhibiting their proliferation at birth. Newborn mice were exposed to room air (RA) or hyperoxia, and the oxygen-exposed mice were recovered in RA. Hyperoxia stimulated mRNA expressed by type II (Sftpc, Abca3) and type I (T1α, Aquaporin 5) cells and inhibited Pecam expressed by endothelial cells. 5-Bromo-2'-deoxyuridine labeling and fate mapping with enhanced green fluorescence protein controlled statically by the Sftpc promoter or conditionally by the Scgb1a1 promoter revealed increased Sftpc and Abca3 mRNA seen on Day 4 reflected an increase in expansion of type II cells shortly after birth. When mice were returned to RA, this expanded population of type II cells was slowly depleted until few were detected by 8 weeks. These findings reveal that hyperoxia stimulates alveolar epithelial cell expansion when it disrupts angiogenesis. The loss of type II cells during recovery in RA may contribute to persistent pulmonary diseases such as those reported in children born preterm who were exposed to supplemental oxygen.