Murine lung epithelial (MLE) cell lines representing the distal bronchiolar and alveolar epithelium were produced from lung tumors generated in transgenic mice harboring the viral oncogene simian virus 40 (SV40) large tumor antigen under transcriptional control of a promoter region from the human surfactant protein C (SP-C) gene. The cell lines exhibited rapid growth, lack of contact inhibition, and an epithelial cell morphology for 30-40 passages in culture. Microvilli, cytoplasmic multivesicular bodies, and multilamellar inclusion bodies (morphologic characteristics of alveolar type II cells) were detected in some of the MLE cell lines by electron microscopic analysis. The MLE cells also maintained functional characteristics of distal respiratory epithelial cells including the expression of surfactant proteins and mRNAs and the ability to secrete phospholipids. Expression of the exogenous SV40 large tumor antigen gene was detected in all of the generated cell lines. The SP-C/SV40 large tumor antigen transgenic mice and the MLE cell lines will be useful for the study of pulmonary surfactant production and regulation as well as lung development and tumorigenesis.