Clinical trials demonstrated decreasing rates of bronchopulmonary dysplasia in preterm infants with hypoxic respiratory failure treated with inhaled nitric oxide (iNO). However, the molecular and biochemical effects of iNO on developing human fetal lungs remain vastly unknown. By using a well-characterized model of human fetal alveolar type II cells, we assessed the effects of iNO and hyperoxia, independently and concurrently, on NO-cGMP signaling pathway and differentiation. Exposure to iNO increased cGMP levels by 40-fold after 3 d and by 8-fold after 5 d despite constant expression of phosphodiesterase-5 (PDE5). The levels of cGMP declined significantly on exposure to iNO and hyperoxia at 3 and 5 d, although expression of soluble guanylyl cyclase (sGC) was sustained. Surfactant proteins B and C (SP-B, SP-C) and thyroid transcription factor (TTF)-1 mRNA levels increased in cells exposed to iNO in normoxia but not on exposure to iNO plus hyperoxia. Collectively, these data indicate an increase in type II cell markers when undifferentiated lung epithelial cells are exposed to iNO in room air. However, hyperoxia overrides these potentially beneficial effects of iNO despite sustained expression of sGC.