The combination of fetal hydrops and sacrococcygeal teratoma (SCT), is considered to be lethal. We report two such babies who survived. Case 1 exhibited oliguric acute renal failure (ARF) immediately after birth, and severe respiratory insufficiency despite maximal ventilatory support and vasodilator infusions. Tumor resection on the 2nd day of life resulted in an immediate improvement in pulmonary function as reflected by the ratio of arterial to alveolar oxygen. Renal function returned in a pattern typical of recovery from acute tubular necrosis. Case 2, less desperately ill, developed nonoliguric ARF, in part due to deliberate fluid restriction during the 7 days that followed birth and preceded surgery. This resolved following liberalization of fluid intake that occurred at the time of tumor removal on the 7th day of life. The baby also had respiratory insufficiency that improved after surgery. Respiratory insufficiency may be a severe and life-threatening complication of SCT and hydrops fetalis. Pulmonary function may improve dramatically by removal of the tumor. Why this improvement occurs is unclear. Improvement of respiratory function may result from the elimination of excess tumor blood volume with an improvement of the ventilation-perfusion ratio. Alternatively, the tumor may be a source of vasoactive substances or extremely desaturated blood that leads to pulmonary hypertension and right-to-left shunting. Uncertainties in postnatal fluid shifts and exaggerated fluid compartment volumes demand close attention to details of renal function.