In fetal sheep with surgically created diaphragmatic hernia (DH), tracheal occlusion (TO) can restore lung growth but does not ameliorate the increase in inter-alveolar wall thickness (T(W)). We determined whether prenatal exposure to glucocorticoids (GC) could reduce T(w) in fetuses with DH undergoing TO. At 65 days of gestation, DH was created in 12 fetal sheep, and TO subsequently performed at 110 days (DH/TO). Six of these fetuses were exposed to betamethasone (DH/TO + GC; 0.5 mg/kg; maternal, IM) 48 hr before delivery; Sham operated fetuses (n = 7) served as controls. At 139 days, we measured alveolar surface density (S(V)), parenchymal tissue fraction, T(W), alveolar type 2 (AE2) cell density and lung surfactant protein (SP) mRNA expression. Prenatal GC decreased T(W) and S(V) by 33% and 27% respectively, and increased fixed lung volume (by 55%), AE2 cell density and partially restored SPmRNA expression. Our data indicate that prenatal exposure to GC can reverse some of the negative effects of prolonged fetal TO. We hypothesize that a GC-induced reduction in lung liquid volume during TO contributes, in part, to the observed increase in AE2 cell density and SPmRNA expression.