Targeted disruption of the surfactant protein (SP) D (SP-D) gene caused a marked pulmonary lipoidosis characterized by increased alveolar lung phospholipids, demonstrating a previously unexpected role for SP-D in surfactant homeostasis. In the present study, we tested whether the local production of SP-D in the lung influenced surfactant content in SP-D-deficient [SP-D(−/−)] and SP-D wild-type [SP-D(+/+)] mice. Rat SP-D (rSP-D) was expressed under control of the human SP-C promoter, producing rSP-D, SP-D(+/+) transgenic mice. SP-D content in bronchoalveolar lavage fluid was increased 30- to 50-fold in the rSP-D, SP-D(+/+) mice compared with the SP-D(+/+) parental strain. Lung morphology, phospholipid content, and surfactant protein mRNAs were unaltered by the increased concentration of SP-D. Likewise, the production of endogenous mouse SP-D mRNA was not perturbed by the SP-D transgene. rSP-D, SP-D(+/+) mice were bred to SP-D(−/−) mice to assess whether lung-selective expression of SP-D might correct lipid homeostasis abnormalities in the SP-D(−/−) mice. Selective expression of SP-D in the respiratory epithelium had no adverse effects on lung function, correcting surfactant phospholipid content and decreasing phosphatidylcholine incorporation significantly. SP-D regulates surfactant lipid homeostasis, functioning locally to inhibit surfactant phospholipid incorporation in the lung parenchyma and maintaining alveolar phospholipid content in the alveolus. Marked increases in biologically active tissue and alveolar SP-D do not alter lung morphology, macrophage abundance or structure, or surfactant accumulation.