Acute alveolar injury closely resembling that seen in humans was induced in dogs by subcutaneous injection of N-nitroso-N-methylurethane. Necrosis of alveolar epithelial cells was observed during early injury. Proliferation of immature epithelial cells which began during early injury and became massive after peak injury was followed by their differentiation to mature type II cells during recovery. Quantities of diphosphatidylglycerol (DPG) and of phosphatidylglycerol (PG) in alveolar lavage and in post-lavage lung tissue were measured. An increase in tissue DPG coincided with a sharp decrease in tissue and lavage PG during early injury. DPG was not detectable in the lavage. During late recovery, tissue DPG increased threefold over controls. This increase was accompanied by persistence of a 50% decrease in tissue PG and 83% decrease in lavage PG. Biosynthesis of DPG and PG in isolated lung mitochondria demonstrated that DPG was formed from PG in the presence of CDP-diglyceride. These findings suggest that the low level of PG in the surfactant complex during acute alveolar injury is due to increased turnover of PG to DPG in the lung.