We determined the effect of oxygen (normoxia ~100 torr, hypoxia ~30-40 torr) on functions of endothelial nitric oxide synthase (NOS-3) and its negative regulator, caveolin-1, in ovine fetal and neonatal lung microvascular endothelial cells (MVECs). Fetal NOS-3 activity, measured as NO production with 0.5-0.9 µM DAF-FM, was decreased in hypoxia by 14.4% (p<0.01), inhibitable by NOS inhibitor, L-NNA, and dependent on extracellular arginine. Caveolar function, assessed as FITC-BSA (160 µg/ml) endocytosis, was decreased in hypoxia by 13.5% in fetal and 22.8% in neonatal MVECs (p<0.01). NOS-3 and caveolin-1 were physically associated as demonstrated by co-immunoprecipitation and colocalization and functionally associated as shown by cross activation of endocytosis by their specific antibodies and activation of NOS by albumin. Caveolin peptide (CP), containing the sequence for PKC phosphorylation site of caveolin, and caveolin antiserum against the site, increased NO production and endocytosis by 12.3% (p<0.05) and 16% (p<0.05) respectively in normoxia and endocytosis by 25% (p<0.001) in hypoxia. Phorbol myristate acetate decreased NO production in normoxia and hypoxia by 19.32% (p<0.001) and 11.8% (p<0.001) and endocytosis in normoxia by 20.35% (p<0.001). PKC kinase activity was oxygen sensitive and threonine phosphorylation was enhanced in hypoxia. Pertussis toxin increased both caveolar and NOS functions. These data support our hypothesis that increased oxygen tension at birth promotes dissociation of caveolin-1 and NOS-3 with an increase in their activities and PKC and an oxygen-sensitive cell-surface G-protein-coupled receptor regulate caveolin-1 and NOS-3 interactions in fetal and neonatal lung MVECs.