Chorioamnionitis is associated with increased risks of perinatal respiratory failure, however, components of the inflammatory acute phase response are known to actively promote lung maturation. To manipulate this relationship, we examined the effect of the thymic immunomodulator, thymulin, on fetal lung mesenchyme-epithelial differentiation during exposure to E. coli lipopolysaccharide (LPS). Gestation day 14 fetal rat lung explants were cultured for 96h at fetal (23mmHg) or ambient (142mmHg) Po₂. Airway surface complexity (ASC,perimeter.area^-2) was greater at fetal versus ambient Po₂, however, exposure to 0.1-50µg.ml^-1 LPS significantly raised ASC at 2µg.ml^-1 in ambient Po₂ explants. 50µg.ml^-1 LPS depressed ASC in both conditions to untreated ambient Po₂ control values without change in the incidence of necrosis or apoptosis. To manipulate LPS-evoked TNF and IL6 release, explants and A549 cells were exposed to combinations of 50µg.ml^-1LPS, 10µM ZnCl₂ and 0.1-1000ng.ml^-1 thymulin at either Po₂. Thymulin+Zn²⁺ suppressed and potentiated LPS-evoked TNF and IL6 release yielding an IC_{50 (TNF)} of 0.5±0.01ng.ml^-1 and EC_50(IL6) of 1.4±0.3ng.ml^-1 in A549 cells. This was accompanied by activation of the p38 MAPK-MAPKAP-K2 pathway with sustained expression of TNF and IL-6 transcripts at ambient Po₂. LPS+thymulin+Zn²⁺ treated explants showed proliferation of CCAAT-enhancer binding protein and fibroblast growth factor-9 immuno-reactive mesenchyme which was abolished by IL6 antisense oligonucleotides. The post-transcriptional suppression of immunogenic TNF synthesis coupled with raised IL-6 and C/EBP-dependent mesenchyme proliferation suggests a role for bioactive thymulin in regulating regenerative repair in the fetal lung.