An important role of the alveolar epithelium is to contribute to the alveolocapillary barrier, secrete surfactant to lower the surface tension, and clear edema. These are energy-requiring processes for which normal oxygenation is required. There are many clinical conditions in which alveolar epithelial cells are exposed to low oxygen concentrations and although they can adapt to hypoxia, there are alterations in cellular function that can impact clinical outcomes. Hypoxic alveolar cells maintain cellular ATP content by increasing glycolytic capacity and via the hypoxia inducible factor-1 activation of a myriad of genes including the vascular endothelial growth factor. In addition, they decrease ATP utilization by down regulating the high energy consuming Na,K-ATPase activity and protein synthesis. The alveolar epithelium is in close apposition to vascular endothelium, which facilitates efficient gas exchange and provides a physical barrier between luminal and interstitial/vascular spaces. Alveolar edema clearance is an active process requiring activity of many proteins of which the amiloride-sensitive sodium channel (ENaC) and Na,K-ATPase are important contributors. Exposure to hypoxia impairs alveolar edema clearance by mechanisms that down regulate both ENaC and the Na,K-ATPase function. Other effects of hypoxia on alveolar cell function include surfactant production, disruption of cytoskeleton integrity, and the triggering of apoptosis. In summary, hypoxia has deleterious effects on the alveolar epithelium. More research needs to be done to better understand the effects of hypoxia on alveolar epithelia cell and lung function.