The lung contains two distinct forms of phosphatidic acid phosphatase (PAP). PAP1 is a cytosolic enzyme that is activated through fatty acid-induced translocation to the endoplasmic reticulum, where it converts phosphatidic acid (PA) to diacylglycerol (DAG) for the biosynthesis of phospholipids and neutral lipids. PAP1 is Mg2+ dependent and sulfhydryl reagent sensitive. PAP2 is a six-transmembrane-domain integral protein localized to the plasma membrane. Because PAP2 degrades sphingosine-1-phosphate (S1P) and ceramide-1-phosphate in addition to PA and lyso-PA, it has been renamed lipid phosphate phosphohydrolase (LPP). LPP is Mg2+independent and sulfhydryl reagent insensitive. This review describes LPP isoforms found in the lung and their location in signaling platforms (rafts/caveolae). Pulmonary LPPs likely function in the phospholipase D pathway, thereby controlling surfactant secretion. Through lowering the levels of lyso-PA and S1P, which serve as agonists for endothelial differentiation gene receptors, LPPs regulate cell division, differentiation, apoptosis, and mobility. LPP activity could also influence transdifferentiation of alveolar type II to type I cells. It is considered likely that these lipid phosphohydrolases have critical roles in lung morphogenesis and in acute lung injury and repair.