<i>Background:</i> Congenital truncation of the glucocorticoid receptor (GR) is known to lead to lethal lung immaturity in newborn mice associated with increased lung cellularity (ratio of tissue to airspace) and, as we previously showed, prolonged expression of the retinoid-responsive growth factor midkine. <i>Objectives:</i> We sought to determine if these changes would be reversed by transgenic expression of GR exclusively in the distal airway epithelium. <i>Methods:</i> Mice were generated with expression of transgenic rat (r) GR driven by the human (h) SP-C promoter, on a background of congenital GR truncation. <i>Results:</i> Transgenic epithelial GR expression reduced lung cellularity and midkine expression to levels comparable to wild-type littermates. Nevertheless, the newborn transgenic mice still displayed respiratory failure. Moreover, epithelial expression of the GR transgene did not alter expression of a number of important markers of lung maturation. <i>Conclusions:</i> Our data demonstrating normalization of the lung tissue to airspace ratio in neonatal mice expressing transgenic GR in the distal airway epithelium is consistent with the concept that normal mesenchymal cell loss is due to GR-responsive stimulation from epithelial cells. However, we could find no evidence of altered apoptotic activity between the groups of mice. We speculate that correction of the severe neonatal lung phenotype of GR-deficient mice will require expression of normal GR in non-epithelial as well as epithelial tissues.