There has been little impact on the incidence of bronchopulmonary dysplasia (BPD) despite advances in perinatal care. BPD is a syndrome of persistent respiratory insufficiency in which preterm infants continue to require supplemental oxygen and/or mechanical ventilatory support with long term implications. Although the severe “classical” form of BPD is infrequently seen, a “new” BPD though often milder continues to complicate the course of the very preterm infant. The aetiology of BPD is likely to be multifactorial, evidence now suggests that premature infants are unable to temper the inflammatory response caused by extra-uterine insults such as mechanical ventilation, sepsis and oxygen. An early increase of pro-inflammatory mediators as well as a concomitant decrease in protective antiinflammatory, antioxidant, anti-protease and growth factors have been noted soon after birth in infants who subsequently develop BPD. This imbalance of inflammation soon after birth is an important factor in the ongoing persistence of BPD and one that requires urgent further research if future preterm infants are to avoid acquiring it. This comprehensive review focuses on this critical imbalance of lung injury and healing in premature infants along with new therapeutic strategies and future implications for research.