Surfactant Protein C (SP-C) is a secreted transmembrane protein that is exclusively expressed by alveolar type II epithelial cells of the lung. SP-C associates with surfactant lipids to reduce surface tension within the alveolus, maintaining lung volume at end expiration. Mutations in the gene encoding SP-C (SFTPC) have recently been linked to chronic lung disease in children and adults. The goal of this study was to determine whether a disease-linked mutation in SFTPC causes lung disease in transgenic mice. The SFTPC mutation, designated g.1728 G --> A, results in the deletion of exon4, generating a truncated form of SP-C (SP-C(Deltaexon4)). cDNA encoding SP-C(Deltaexon4) was constitutively expressed in type II epithelial cells of transgenic mice. Viable F0 transgene-positive mice were not generated after two separate rounds of pronuclear injections. Histological analysis of lung tissue harvested from embryonic day 17.5 F0 transgene-positive fetuses revealed that SP-C(Deltaexon4) caused a dose-dependent disruption in branching morphogenesis of the lung associated with epithelial cell cytotoxicity. Transient expression of SP-C(Deltaexon4) in isolated type II epithelial cells or HEK293 cells resulted in incomplete processing of the mutant proprotein, a dose-dependent increase in BiP transcription, trapping of the proprotein in the endoplasmic reticulum, and rapid degradation via a proteasome-dependent pathway. Taken together, these data suggest that the g.1728 G --> A mutation causes misfolding of the SP-C proprotein with subsequent induction of the unfolded protein response and endoplasmic reticulum-associated degradation pathways ultimately resulting in disrupted lung morphogenesis.