Claudins are a family of transmembrane proteins that are required for tight junction formation. Claudin (CLDN)-18.1, the only known lung-specific tight junction protein, is the most abundant claudin in alveolar epithelial type (AT) 1 cells, and is regulated by lung maturational agonists and inflammatory mediators. To determine the function of CLDN18 in the alveolar epithelium, CLDN18 knockout (KO) mice were generated and studied by histological, biochemical, and physiological approaches, in addition to whole-genome microarray. Alveolar epithelial barrier function was assessed after knockdown of CLDN18 in isolated lung cells. CLDN18 levels were measured by quantitative PCR in lung samples from fetal and postnatal human infants. We found that CLDN18 deficiency impaired alveolar epithelial barrier function in vivo and in vitro, with evidence of increased paracellular permeability and architectural distortion at AT1–AT1 cell junctions. Although CLDN18 KO mice were born without evidence of a lung abnormality, histological and gene expression analysis at Postnatal Day 3 and Week 4 identified impaired alveolarization. CLDN18 KO mice also had evidence of postnatal lung injury, including acquired AT1 cell damage. Human fetal lungs at 23–24 weeks gestational age, the highest-risk period for developing bronchopulmonary dysplasia, a disease of impaired alveolarization, had significantly lower CLDN18 expression relative to postnatal lungs. Thus, CLDN18 deficiency results in epithelial barrier dysfunction, injury, and impaired alveolarization in mice. Low expression of CLDN18 in human fetal lungs supports further investigation into a role for this tight junction protein in bronchopulmonary dysplasia.