Lung hypoplasia (LH) is a common neonatal problem resulting from small, structurally immature lungs. LH is a graded condition which, if severe, is life threatening due to impairment of ventilation, pulmonary blood flow and gas exchange. Although the effects of LH on the structure of lung parenchyma have been well defined in a number of species, little is known about its structural or functional effects on the pulmonary vasculature. Using an ovine model of bilateral LH we have studied pulmonary vascular development and blood flow in relation to ventilatory performance and lung mechanics. LH greatly increases pulmonary vascular resistance and is associated with evidence of impaired development of the pulmonary vasculature, and decreased mRNA levels of vascular growth factors such as PDGF and PECAM-1. Many studies have shown that antenatal corticosteroid treatment has a beneficial effect on lung development and the perinatal transition. In neonatal sheep with LH, lung compliance is not affected by a single dose of antenatal corticosteroids but pulmonary vascular resistance is significantly reduced, and mRNA expressions of PDGF and PECAM-1 normalised. It is clear that antenatal corticosteroids could be a promising treatment option for infants experiencing difficulties with perinatal adaptation of the pulmonary circulation associated with LH and other pathological respiratory conditions.