Type II alveolar epithelia produce, store and secrete pulmonary surfactant, a phospholipid and protein mixture which stabilizes alveoli at low lung volumes and, thereby, prevents alveolar collapse. We determined the developmental changes in the uptake, metabolism and reutilization of surfactant-related phospholipid in primary cultures of type II cells derived from fetal rat lung. Primary cultures of fetal and neonatal type II cells were incubated in media containing labelled liposomes. After the incubation phospholipids were extracted from the cells and uptake of label was analyzed. Re-uptake of radiolabelled dipalmitoyl phosphatidylcholine (DPPC) was concentration-dependent in undifferentiated fetal cells, differentiated fetal cells and neonatal cells. Re-uptake of DPPC by undifferentiated fetal cells was lower than re-uptake by both differentiated fetal and neonatal cells at 15 and 75 mu M PC. Binding of DPPC to the cell surface involved a protein interaction, since trypsin was able to dissociate this trypsin-releasable fraction from internalized label. Undifferentiated fetal, differentiated fetal and neonatal cells all exhibited approx. 50% metabolic degradation of internalized phospholipid. Degraded lipids were reutilized in the synthesis of phosphatidylglycerol, but neonatal cells resynthesized twice as much phosphatidylglycerol as did undifferentiated fetal cells. These are the first studies which show that morphologically undifferentiated fetal type II cells are capable of the uptake of surfactant phospholipid as well as the degradation and reutilization of internalized phospholipid. Re-uptake, degradation and reutilization of internalized phospholipid appear to be under developmental control.