GM-CSF gene targeted (GM^−/−) mice are susceptible to respiratory infections and develop alveolar proteinosis due to defects in innate immune function and surfactant catabolism in alveolar macrophages (AMs), respectively. Reduced cell adhesion, phagocytosis, pathogen killing, mannose- and Toll-like receptor expression, and LPS- or peptidoglycan-stimulated TNFα release were observed in AMs from GM^−/− mice. The transcription factor PU.1 was markedly reduced in AMs of GM^−/− mice in vivo and was restored by selective expression of GM-CSF in the lungs of SPC-GM/GM^−/− transgenic mice. Retrovirus-mediated expression of PU.1 in AMs from GM^−/− mice rescued host defense functions and surfactant catabolism by AMs. We conclude that PU.1 mediates GM-CSF-dependent effects on terminal differentiation of AMs regulating innate immune functions and surfactant catabolism by AMs.