Administration of inhaled nitric oxide (iNO) is a potential therapeutic strategy to prevent bronchopulmonary dysplasia (BPD) in premature newborns with respiratory distress syndrome. We evaluated this approach in a rat model, in which premature pups were exposed to room air, hyperoxia or a combination of hyperoxia and NO (8.5 and 17 ppm). We investigated the anti-inflammatory effects of prolonged iNO therapy by studying survival, histopathology, fibrin deposition, and differential mRNA expression (real-time RT-PCR) of key genes involved in the development of BPD. iNO therapy prolonged median survival 1.5 days (p = 0.0003), reduced fibrin deposition in a dosage dependent way up to 4.3-fold (p < 0.001), improved alveolar development by reducing septal thickness, and reduced the influx of leukocytes. Analysis of mRNA expression revealed an iNO-induced downregulation of genes involved in inflammation (IL-6, cytokine-induced neutrophilic chemoattractant-1 and amphiregulin), coagulation and fibrinolysis (plasminogen activator inhibitor 1 and urokinase-type plasminogen activator receptor) and cell-cycle regulation (p21), and an upregulation of fibroblast growth factor receptor-4 (alveolar formation). We conclude that iNO therapy improves lung pathology and prolongs survival by reducing septum thickness, inhibiting inflammation, and reducing alveolar fibrin deposition in premature rat pups with neonatal hyperoxic lung injury.