The aqueous lining of the lung surface exposed to the air is covered by lung surfactant, a film consisting of lipid and protein components. The main function of lung surfactant is to reduce the surface tension of the air-water interface to the low values necessary for breathing. This function requires the exchange of material between the lipid monolayer at the interface and lipid reservoirs under dynamic compression and expansion of the interface during the breathing cycle. We simulated the reversible exchange of material between the monolayer and lipid reservoirs under compression and expansion of the interface. We used a mixture of dipalmitoyl-phosphatidylcholine, palmitoyl-oleoyl-phosphatidylglycerol, cholesterol, and surfactant-associated protein C as a functional analog of mammalian lung surfactant. In our simulations, the monolayer collapses into the water subphase on compression and forms bilayer folds. On monolayer reexpansion, the material is transferred from the folds back to the interface. The simulations indicate that the connectivity of the bilayer aggregates to the monolayer is necessary for the reversibility of the monolayer-bilayer transformation. The simulations also show that bilayer aggregates are unstable in the air subphase and stable in the water subphase.