Congenital diaphragmatic hernia (CDH) occurs in ~1:2500 human births and has high morbidity and mortality rates, primarily due to pulmonary hypoplasia and pulmonary hypertension. Tracheal occlusion (TO) in experimental animals, distends the lungs, increases lung growth and alveolar type I cell maturation, but decreases surfactant components and reduces alveolar type II cell density. We examined effects of CDH and CDH+TO on lung growth and maturation in fetal rats. To induce CDH, we administered nitrofen (100 mg) to dams at 9.5d gestation. At 20d, we performed TO on a fraction of those fetuses (CDH+TO). Fetuses were delivered and lungs harvested at 22d (term). We compared lungs from fetuses with CDH, CDH+TO and those exposed to nitrofen without CDH. CDH decreased lung wet weight bilaterally (P<0.0001) and DNA content in the lung ipsilateral to the CDH (P<0.05). CDH+TO significantly increased lung wet weights bilaterally; DNA content was intermediate between CDH and NC. To evaluate effects on distal pulmonary epithelial development and maturation, we examined surfactant protein mRNA and protein levels, type I and II cell specific markers (RTI₄₀ and RTII₇₀, respectively), and the transcriptional regulator, thyroid transcription factor-1 (TTF-1). Decreased lung distension (due to CDH) increased SP-C mRNA and TTF-1 protein expression and reduced RTI₄₀ (P<0.05 for all). Increased lung distension (due to CDH+TO) reduced expression of SP mRNAs, proSP-C and TTF-1 proteins and enhanced expression of RTI₄₀ (mRNA and protein) (P<0.05 for all). CDH+ TO did not affect expression of SP-A, SP-B and RTII₇₀ proteins. We conclude that CDH+TO partially reverses effects of CDH; it corrects the pulmonary hypoplasia, restores type I cell differentiation, but adversely affects surfactant protein expression in type II cells. These effects may be mediated through changes in TTF-1 expression.