In order to address the biological function of GlcNAc N-deacetylase/N-sulfotransferase-1 (NDST-1), we disrupted the NDST-1 gene by homologous recombination in mouse embryonic stem cells. The NDST-1 null mice developed respiratory distress and atelectasis that subsequently caused neonatal death. Morphological examination revealed type II pneumocyte immaturity, which was characterized by an increased glycogen content and a reduced number of lamellar bodies and microvilli. Biochemical analysis further indicated that both total phospholipids and disaturated phosphatidylcholine were reduced in the mutant lung. Our data revealed that NDST-1 was essential for the maturation of type II pneumocytes and its inactivation led to a neonatal respiratory distress syndrome.