Increased caveolin-1 expression is a marker of the differentiation of lung alveolar epithelial type II cells into a type I phenotype. Here, we show in both a primary differentiating rat alveolar culture, and a human alveolar cell line (A549) that caveolae formation and caveolin-1 expression are dependent upon dexamethasone Dex, and is inhibited by the glucocorticoid receptor (GR) antagonist, mifepristone. Study of a panel of 20 different cell types showed the effect of (Dex) upon caveolin-1 expression to be highly cell selective for lung alveolar epithelial cells. The actions of glucocorticoid upon caveolin-1 appear indirect acting via intermediary genes as evidenced by cycloheximide (CHX) abolition of Dex-induced increases in caveolin-1 mRNA and by recombinant transfection studies using the caveolin-1 promoter cloned upstream of a reporter gene. Treatment with actinomycin D (ACD) revealed that the effects of Dex are also, at least in part, mediated by stabilisation of caveolin-1 mRNA. Collectively, these results indicate that glucocorticoids modulate the expression of caveolin-1 and caveolae biogenesis within alveolar epithelial cells via both transcriptional and translational modifications. The cell-selective effects of glucocorticoid upon caveolin may represent a previously unrecognised mechanism by which glucocorticoids affect lung development.