At birth, the successful transition to extra-uterine life is dependent upon the ability of the lung to take over the role of respiratory gas-exchange. Before birth, the future airways of the lungs are filled with a liquid that is produced by the lung and leaves the lungs by flowing out of the trachea. At rest, adduction of the larynx restricts lung liquid efflux and promotes its retention within the airways, thereby generating a 1- 2mmHg internal distending pressure on the lung. At birth the airways must be cleared of liquid to allow the entry of air, but a thin film must remain to protect the epithelium from desiccation. This creates an air/liquid interface across the large internal surface of the lung which increases lung recoil, despite the presence of surfactant. Thus, after birth, the loss of the distending influence of lung liquid, and the increase in lung recoil associated with lung aeration greatly alters the distribution of forces exerted within lung tissue. As a result, lung luminal volumes decrease and the tendency for the lung to collapse away from the chest wall increases, leading to the creation of a sub-atmospheric intra-pleural pressure. Until recently, the role of lung aeration and the resultant changes in physical forces, have been over-looked as factors regulating the normal changes in lung physiology that are required for the lung to adopt the role of respiratory gas exchange at birth. As these changes in the respiratory system are essential for the independent survival of the newborn infant after birth, it is important to understand the mechanisms involved so that these changes are not impeded in the sick, ventilated very preterm infant. At birth numerous changes in lung physiology occur which transform the respiratory system into an efficient gas-exchange system. For instance, the number of surfactant secreting type-II epithelial cells increases, chest wall compliance decreases and pulmonary blood flow (PBF) markedly increases. One of the most remarkable changes in lung physiology that occurs at birth is the large increase in PBF, resulting from a marked decrease in pulmonary vascular resistance (PVR). Before birth, most (∼88%) of right ventricular output by-passes the lungs and passes through the ductus arteriosus (DA) into the systemic circulation. This is primarily attributed to the high PVR in the fetus which is also responsible for the unique PBF waveform contour, which is mainly characterized by a large retrograde, flow of blood away from the lungs during diastole; this blood exits the pulmonary circulation via the DA. At birth, the rapid decrease in PVR causes marked changes in the contour of the PBF waveform with the disappearance of the negative or retrograde component. As a result, forward flow occurs throughout the cardiac cycle. Although many factors are thought to contribute to this decrease in PVR at birth, the accumulating evidence indicates that a change in the distribution of forces within lung tissue is a major contributing factor. Other changes in the lung that occur at birth include a change in the relative proportions of type-I and type-II epithelial cells and a gradual stiffening of the chest wall to enhance breathing efficiency. Although these changes, including the changes in PVR, are usually assumed to be independent events, recent evidence suggests that they are inter-related and that they are precipitated by the replacement of lung liquid with air. In this review, our primary aims are to discuss how the presence of liquid-filled airways influences lung physiology in the fetus and the role that changing the internal environment of the lung from liquid to air plays in the adaptation of the respiratory system to air-breathing at birth. It is important to understand these interrelationships as positive pressure ventilation can oppose these changes in lung physiology. Thus, in very preterm infants (born < 30 weeks GA), who require resuscitation and assisted ventilation during their first weeks of life, it is important to adopt ventilation strategies that do not impede these normal physiological changes.