The rat gamma-glutamyl transferase mRNA transcripts I, II, and III are derived from three alternative promoters, P(I), P(II), and P(III). In the adult only mRNA III is expressed in the lung. We show that mRNA III gene expression is developmentally regulated in the fetal lung; it is first expressed in gestation. In contrast to the adult lung, the fetal lung expresses mRNA I, II, and III. The switch from the fetal to the adult pattern of gammaGT mRNA expression begins within the first 24 h of birth and is complete by 10 d of age. gammaGT mRNA II disappears within 24 h, mRNA I disappears by 10 d leaving mRNA III as the sole transcript. Alveolar epithelial type 2 cells (AT2) isolated from the adult lung express only mRNA III. When cultured in 21% O2 mRNA III is maintained, but when cultured in 3% O2 the fetal pattern of mRNA I, II and III expression is induced. When AT2 cells in hypoxia are exposed to carbon monoxide, mRNA II is suppressed suggesting that a heme-binding protein (responsive to oxygen) may suppress mRNA II expression and may be responsible for the decrease in lung mRNA II seen after birth. A reporter gene under the control of DNA sequences from the gammaGT P(III) promoter is activated in transient transfection studies in response to hyperoxia, while a deletion construct retaining an antioxidant responsive element is not. Oxygen appears to regulate each of the alternative promoters of the gammaGT gene, such that P(II) is rapidly repressed by a heme-dependent mechanism, P(I), is more gradually repressed by a nonheme mechanism and P(III) is activated by a putative oxygen response element. We hypothesize that similar oxygen-dependent mechanisms regulate other genes in the developing lung at birth.