We have previously demonstrated that fetal ethanol exposure deranges the function and viability of the neonatal alveolar macrophage. Although altered differentiation of the alveolar macrophage contributes to pulmonary disease states within the adult lung, the effects of fetal ethanol exposure on the normal differentiation of interstitial to alveolar macrophage in the newborn lung are unknown. In the current study, using a mouse model of fetal ethanol exposure, we hypothesized that altered terminal differentiation of the neonatal interstitial to alveolar macrophage contributes to the observed cellular dysfunction in the ethanol-exposed newborn mouse. Control alveolar macrophage differentiation was characterized by increased expression of CD32/CD11b (P < or = 0.05) and increased in vitro phagocytosis of Staphylococcus aureus (P < or = 0.05) compared with interstitial macrophage. After in utero ethanol exposure, both alveolar and interstitial macrophage lacked the acquisition of CD32/CD11b (P < or = 0.05) and displayed impaired in vitro phagocytosis (P < or = 0.05). Ethanol significantly increased transforming growth factor-beta(1) (TGF-beta(1)) in the bronchoalveolar lavage fluid (P < or = 0.05), as well as in both interstitial and alveolar macrophages (P < or = 0.05). Oxidant stress contributed to the ethanol-induced changes on the interstitial and alveolar cells, since maternal supplementation with the glutathione precursor S-adenosylmethionine during ethanol ingestion normalized CD32/CD11b (P < or = 0.05), phagocytosis (P < or = 0.05), and TGF-beta(1) in the bronchoalveolar lavage fluid and macrophages (P < or = 0.05). Contrary to our hypothesis, fetal ethanol exposure did not solely impair interstitial to alveolar macrophage differentiation. Rather, fetal ethanol exposure impaired both neonatal interstitial and alveolar macrophage phagocytic function and differentiation. Increased oxidant stress and elevated TGF-beta(1) contributed to the impaired differentiation of both interstitial and alveolar macrophage.