Sepsis is a common and life-threatening condition with a high mortality rate. Severe sepsis includes multiorgan dysfunction syndrome. The organ most often affected is the lung, with development of acute lung injury (ALI), which, in its most severe form, is referred to as acute respiratory distress syndrome (ARDS). Our understanding of inflammation in the pathogenesis of sepsis and ALI is continually growing. However, therapies aimed at the inflammatory cascade in sepsis have been unsuccessful. These failures have led investigators to consider other pathways that may be important in the development of sepsis and ALI, including the coagulation and fibrinolytic cascades. In fact, the first therapy to reduce mortality in sepsis modulates the coagulation cascade. With this clinical success, administration of drotecogin alfa (recombinant activated protein C), the importance of coagulation in the pathogenesis of human sepsis is becoming clearer. This review summarizes the current understanding of the role of coagulation and fibrinolytic abnormalities in sepsis and the development of ALI and ARDS. Both in vitro and in vivo studies of the role of the coagulation cascade in sepsis and lung injury will be discussed, including initiation of coagulation through modulation of tissue factor and tissue factor pathway inhibitor, propagation of coagulation via protein C and thrombomodulin, inhibition of thrombin generation and resolution through thrombolysis by plasminogen activator, and plasminogen activator inhibitor-1.