Supplemental oxygen, used to treat hypoxia in preterm and term neonates, increases the risk of neonatal lung diseases, such as bronchopulmonary dysplasia (BPD) and asthma. There is a known sex predilection for BPD, but the underlying mechanisms are not clear. We tested the hypothesis that altered, local estradiol following hyperoxia contributes to pathophysiological changes observed in immature lung. In human fetal airway smooth muscle (fASM) cells exposed to normoxia or hyperoxia, we measured the expression of proteins involved in estrogen metabolism and cell proliferation responses to estradiol. In fASM cells, CYP1a1 expression was increased by hyperoxia, whereas hyperoxia-induced enhancement of cell proliferation was blunted by estradiol. Pharmacological studies indicated that these effects were attributable to upregulation of CYP1a1 and subsequent increased metabolism of estradiol to a downstream intermediate 2-methoxyestradiol. Microarray analysis of mouse lung exposed to 14 days of hyperoxia showed the most significant alteration in CYP1a1 expression, with minimal changes in expression of five other genes related to estrogen receptors, synthesis, and metabolism. Our novel results on estradiol metabolism in fetal and early postnatal lung in the context of hyperoxia indicate CYP1a1 as a potential mechanism for the protective effect of estradiol in hyperoxia-exposed immature lung, which may help explain the sex difference in neonatal lung diseases.