The immediate effects on lung volume, ventilation homogeneity, and lung mechanics of tracheal instillation of surfactant were studied in premature lambs, gestational age 120-122 d, with respiratory distress syndrome. Six lambs received surfactant by tracheal instillation 25 min after delivery by cesarean section; five received only vehicle and served as controls. The lambs were studied for 60 min thereafter. Functional residual capacity was measured with a computerized tracer gas washin-washout technique using sulfur hexafluoride as tracer gas. A measure of ventilation inhomogeneity (pulmonary clearance delay) was also calculated from the washout curves. Pressure-volume curves were studied with an interrupter technique during deflation of the lungs from an airway pressure of 30 cm H2O. In the surfactant group, arterial oxygenation and ventilation homogeneity improved within 5 min of giving surfactant; major increases in functional residual capacity, vital capacity, and compliance occurred within 5 to 20 min and were followed by gradual further improvements. The pressure-volume curve thus increased in amplitude and became steeper, but the lung volumes at various inflation pressures, and compliance, remained constant when expressed as fractions of total lung capacity volume. It is concluded that an improvement in lung volume, respiratory mechanics, and ventilation homogeneity occurs very soon after surfactant instillation and that there is a phase of successive further improvement over the next hour. Although the amplitude of the pressure-volume curve varied considerably, its basic shape varied little. This suggests that opening of new distal airways by surfactant predominated over changes in the mechanics of already aerated lung regions.