The thyroid transcription factor (TTF)-1 has an essential role in lung morphogenesis and development. It is involved in the transcription of surfactant proteins (SP), which are critical in respiratory function. Neonates with congenital diaphragmatic hernia die of respiratory failure caused by pulmonary hypoplasia with associated biochemical immaturity. To gain new insights into the causes of this disorder and the effect of prenatal hormonal treatment on reducing mortality in these infants, we evaluated the expression of TTF-1 as marker of lung morphogenesis and SP-B as marker of lung maturity. Using a rat model of lung immaturity, we show that TTF-1 and SP-B messenger RNA (mRNA) levels are drastically reduced in congenital lung hypoplasia. Interestingly, prenatal dexamethasone (Dex) treatment increased both TTF-1 and SP-B mRNAs over control levels when administered to rats with lung hypoplasia, but it had no effect on TTF-1 or a moderate effect on SP-B mRNA when administered to control rats. TRH alone also increases TTF-1 and SP-B mRNA levels but to a lesser extent than Dex. When administered together with Dex, TRH counteracts the induction observed with the glucocorticoid. The decrease in TTF-1 mRNA levels in lung hypoplasia is paralleled by a down-regulation of TTF-1 protein levels, as well as by a decrease in the TTF-1/DNA complex when the TTF-1-binding site of the SP-B promoter was used as a probe. Both parameters were reestablished after glucocorticoid treatment. Moreover, the regulation of TTF-1 gene expression described in this report is accompanied by the same regulation in its promoter activity, as demonstrated in transfection experiments performed in H-441 human lung-derived adenocarcinoma cells. In conclusion, our data demonstrate, for the first time, that lung hypoplasia and the associated respiratory dysfunction caused by SP-B deficiency are caused, in part, by down-regulation of TTF-1 gene expression. The observations that prenatal glucocorticoid treatment induces the expression of TTF-1 supports routine in utero glucocorticoid treatment of patients expected to have lung hypoplasia.