Surfactant protein (SP)-D plays an important role in host defense and pulmonary surfactant homeostasis. In Sftpd^-/- mice, the abnormal large surfactant forms seen at the ultrastructural level are taken up inefficiently by type II cells, resulting in over 3-fold increase in the surfactant pool size. The mechanisms by which SP-D influences surfactant ultrastructure are unknown. We hypothesize that SP-D binds to surfactant immediately after being secreted and influences surfactant ultrastructure conversion. In newborn and adult sheep lung, immunogold labeled SP-D was associated with both lamellated membranous lipid structures of newly secreted surfactant and with small aggregate surfactant, but not with tubular myelin. Since SP-D preferentially binds to phosphatidylinositol (PI) in vitro, the postnatal changes in PI were assessed. PI content in the BALF increased after birth, peaking at 2-5d of age, at a time of rapid conversion of surfactant forms that is associated with peak of surfactant lipid pool size. SP-D selectively interacted with PI rich liposomes in vitro, causing their lysis. Similarly, abnormal surfactant ultrastructure in Sftpd^-/- mice was corrected by the addition of SP-D or melittin, and both peptides caused lysis of lipid vesicles. The normal conversion of surfactant ultrastructure requires SP-D that preferentially interacts with PI rich, newly secreted surfactant, causing lysis of the surfactant lipid membranes, converting the lipid forms into smaller surfactant lamellated structures that are critical for surfactant uptake by type II cells and normal surfactant homeostasis. SP-D regulates the dramatic decreases in the surfactant pool size that occurs in the newborn period.