Bronchopulmonary dysplasia (BPD) is a chronic lung disease of premature human infants, which may persist through adulthood. Airway inflammation has been firmly established in the pathogenesis of BPD. Previous studies to reduce airway inflammation with high-dose dexamethasone demonstrated adverse neurological outcomes, despite lower incidences of BPD. Instillation of budesonide and surfactant can facilitate early extubation and reduce the incidence of BPD and death among very low birth weight infants. However, the pharmacokinetics of budesonide and its distribution into the lung and brain are unknown. Therefore, 5 premature lambs were administered 0.25 mg/kg budesonide, with surfactant as the vehicle. Plasma and tissue samples were taken from the lambs for measurement of budesonide, 16α-hydroxy prednisolone, and budesonide palmitate using LC/MS/MS. Peak plasma budesonide concentrations were inversely correlated with the oxygenation index (correlation coefficient of −0.75). Plasma budesonide concentrations were extremely low (~10% of expected) for two lambs that had high oxygenation indices and were excluded from further analyses. For the remaining 5 premature lambs, a non-compartmental analysis demonstrated an AUCinf of 148.77 ± 28.16 h*μg/L, half-life of 4.76 ± 1.79 h, and Cmax of 46.17 ± 17.71 μg/L. Using population pharmacokinetic methods, a one-compartment model with exponential residual error and first-order absorption adequately described the data. The apparent clearance and apparent volume of distribution of budesonide were estimated at 6.29 L/h (1.99 L/h/kg) and 29.1 L (9.2 L/kg), respectively. Budesonide and budesonide palmitate, but not 16α-hydroxy prednisolone, were detected in lung tissue. In this study, budesonide and its metabolites were not detected in the brain, which suggests that intratracheal instillation suggests that after local pulmonary deposition, there is no evidence of budesonide accumulation in the central nervous system. Overall, these results show that peak plasma budesonide concentrations are inversely correlated with the oxygenation index and that lung-specific delivery of budesonide avoids accumulation of budesonide in the brain.