Tight junction proteins in the claudin family regulate epithelial barrier function. We examined claudin expression by human fetal lung (HFL) alveolar epithelial cells cultured in medium containing dexamethasone, 8-bromo-cAMP, and isobutylmethylxanthanine (DCI), which promotes alveolar epithelial cell differentiation to a type II phenotype. At the protein level, HFL cells expressed claudin-1, claudin-3, claudin-4, claudin-5, claudin-7, and claudin-18, where levels of expression varied with culture conditions. DCI-treated differentiated HFL cells cultured on permeable supports formed tight transepithelial barriers, with transepithelial resistance (TER) >1,700 ohm/cm(2). In contrast, HFL cells cultured in control medium without DCI did not form tight barriers (TER <250 ohm/cm(2)). Consistent with this difference in barrier function, claudins expressed by HFL cells cultured in DCI medium were tightly localized to the plasma membrane; however, claudins expressed by HFL cells cultured in control medium accumulated in an intracellular compartment and showed discontinuities in claudin plasma membrane localization. In contrast to claudins, localization of other tight junction proteins, zonula occludens (ZO)-1, ZO-2, and occludin, was not sensitive to HFL cell phenotype. Intracellular claudins expressed by undifferentiated HFL cells were localized to a compartment containing early endosome antigen-1, and treatment of HFL cells with the endocytosis inhibitor monodansylcadaverine increased barrier function. This suggests that during differentiation to a type II cell phenotype, fetal alveolar epithelial cells use differential claudin expression and localization to the plasma membrane to help regulate tight junction permeability.