The reactivity of subpleural strips of lung parenchyma reflects primarily the tone of the smooth muscle in the peripheral airways. Lung strips taken from ten dogs relaxed when the oxygen level in the gas bubbling through the bath was reduced from 95% to 18%. Subsequent hypocapnia (carbon dioxide reduced from 5% to 0%) induced contraction of all strips. These changes were reversed when the oxygen or carbon dioxide tensions were restored to control levels. Addition of either indomethacin or meclofenamate, two chemically dissimilar inhibitors of prostaglandin synthetase, reduced the resting tone in each of six strips and prevented the hyperoxic constriction which was observed in paired, control strips (oxygen increased from 18% to 95%). Blockers of histamine and catecholamines had no effect. The reactivity of the distal airways to changes in gas tension provides a mechanism by which ventilation and perfusion can be matched. The action of indomethacin and meclofenamate indicates that a prostaglandin-like substance may be involved in the maintenance of distal airway tone and in the constriction produced by hyperoxia. The addition of prostaglandin F2 alpha or E1, after meclofenamate, in a further nine pairs of strips did not restore the hyperoxic constriction. This suggests that prostaglandins may mediate, rather than merely facilitate, the response.