The gas‐liquid interface within the alveolus is completely lined with a complex mixture of lipids and unique proteins termed pulmonary surfactant, which both reduces surface tension and permits it to vary directly with the radius of curvature. In this way it minimizes the work of breathing and permits alveoli of different sizes to exist in equilibrium. However, surfactant does far more in that it also controls fluid balance in the lung and appears to play a key role in host defence. Either a deficiency in surfactant or an aberrant surfactant results in atelectasis and oedema. The surfactant system is very dynamic: alveolar surfactant phosphatidylcholine, the principal component, having a half life of only a few hours, with as much as 85% being recycled. Although distortion of the alveolar type II cell is now accepted as the principal stimulus for release, much remains to be discovered of modulating factors and intracellular signalling in the control of surfactant homeostasis. Likewise, many questions remain concerning the control of synthesis of the surfactant phospholipids, neutral lipids and proteins and their assembly into the tubular myelin form of alveolar surfactant, the refining of the monolayer with breathing, the control of re‐uptake of different components into the type II cells and the roles of the proteins.