Pulmonary surfactant serves as a barrier to respiratory epithelium but can also regulate airway smooth muscle (ASM) tone. Surfactant (SF) relaxes contracted ASM, similar to β2-agonists, anticholinergics, nitric oxide, and prostanoids. The exact mechanism of surfactant relaxation and whether surfactant relaxes hyperresponsive ASM remains unknown. Based on previous research, relaxation requires an intact epithelium and prostanoid synthesis. We sought to examine the mechanisms by which surfactant causes ASM relaxation. Organ bath measurements of isometric tension of ASM of guinea pigs in response to exogenous surfactant revealed that surfactant reduces tension of healthy and hyperresponsive tracheal tissue. The relaxant effect of surfactant was reduced if prostanoid synthesis was inhibited and/or if prostaglandin E2-related EP2 receptors were antagonized. Atomic force microscopy revealed that human ASM cells stiffen during contraction and soften during relaxation. Surfactant softened ASM cells, similarly to the known bronchodilator prostaglandin E2 (PGE2) and the cell softening was abolished when EP4 receptors for PGE2 were antagonized. Elevated levels of PGE2 were found in cultures of normal human bronchial epithelial cells exposed to pulmonary surfactant. We conclude that prostaglandin E2 and its EP2 and EP4 receptors are likely involved in the relaxant effect of pulmonary surfactant in airways.