Molecular disruption of homeostatic alveolar epithelial-mesenchymal interactions results in transdifferentiation of alveolar interstitial lipofibroblasts to myofibroblasts. Although this process was suggested to be a central molecular event in the pathogenesis of bronchopulmonary dysplasia (BPD), so far it has been only demonstrated in vitro; whether it also occurs in vivo is unknown. Our objectives were to determine if exposure to hyperoxia results in pulmonary alveolar lipo-to-myofibroblast transdifferentiation in vivo, and whether treatment with a potent peroxisome proliferator-activated receptor gamma (PPARγ) (the key lipogenic fibroblast nuclear transcription factor) agonist, rosiglitazone, prevents this process. Newborn Sprague Dawley rat pups were exposed to control (21% O), hyperoxia alone (95% O for 24 hr), or hyperoxia with rosiglitazone (95% O for 24 hr-rosiglitazone, 3 mg/kg, administered intraperitoneally) conditions. Subsequently, pups were sacrificed, and lung tissue was analyzed by morphometry, and by reverse transcription-polymerase chain reaction, Western hybridization, and immunohistochemistry for the expression of key lipogenic and myogenic markers. We observed a significant decrease in the expression of lipogenic markers, and a significant increase in the expression of myogenic markers in the hyperoxia-alone group. These hyperoxia-induced morphologic, molecular, and immunohistochemical changes were almost completely prevented by rosiglitazone. This is the first evidence of in vivo lipo-to-myofibroblast transdifferentiation and its almost complete prevention by rosiglitazone, prompting us to conclude that administration of PPARγ agonists may be a novel, effective strategy to prevent the hyperoxia-induced lung molecular injury that has been implicated in the pathogenesis of BPD. © 2006 Wiley-Liss, Inc.