Pulmonary neuroendocrine cell (PNEC) system consists of solitary cells and innervated clusters, neuroepithelial bodies (NEB), widely distributed throughout the airway mucosa of mammalian lungs. These cells are numerous in fetal/ neonatal lungs and produce amine (serotonin, 5-HT) as well as a variety of neuropeptides (e.g. bombesin). The potential role and significance of these highly specialized lung cells in normal and diseased lung is only now beginning to be appreciated. The multifaceted role(s) of PNEC system include lung development, neonatal adaptation and during postnatal airway homeostasis as guardians of stem cell niche. Recent advances in cellular and molecular biology of PNEC system particularly their ontogeny and mechanisms of neuroendocrine differentiation in developing lung are reviewed. The evidence for the role of NEB as hypoxia-sensitive airway chemoreceptors is presented including identification and characterization of O2 sensor molecular complex that is activated by hypoxia leading to release of amine and peptide mediators acting locally or via NEB neural connections. Thus NEB are postulated to function as O2 sensitive airway sensors involved in respiratory control, especially during adaptation to extrauterine life. Hyperplasia of PNEC/NEB cells, suggesting altered function, has been identified in a number of perinatal/pediatric lung disorders including bronchopulmonary dysplasia, central hypoventilation syndrome, Sudden Infant Death Syndrome and Neuroendocrine Hyperplasia of Infancy as well as Cystic Fibrosis and pediatric asthma. In the adults, PNEC/NEB may be involved in the pathogenesis of tobacco induced airway disease, pulmonary fibrosis and lung carcinogenesis.