Pulmonary surfactant is a complex of lipids and proteins produced and secreted by alveolar type II cells that provides the low surface tension at the air-liquid interface. The phospholipid most responsible for providing the low surface tension in the lung is dipalmitoylphosphatidylcholine. Dipalmitoylphosphatidylcholine is synthesized in large part by phosphatidylcholine (PC) remodeling, and a lysophosphatidylcholine (lysoPC) acyltransferase is thought to play a critical role in its synthesis. However, this acyltransferase has not yet been identified. We have cloned full-length rat and mouse cDNAs coding for a lysoPC acyltransferase (LPCAT). LPCAT encodes a 535-aa protein of approximately 59 kDa that contains a transmembrane domain and a putative acyltransferase domain. When transfected into COS-7 cells and HEK293 cells, LPCAT significantly increased lysoPC acyltransferase activity. LPCAT preferred lysoPC as a substrate over lysoPA, lysoPI, lysoPS, lysoPE, or lysoPG and prefers palmitoyl-CoA to oleoyl-CoA as the acyl donor. This LPCAT was preferentially expressed in the lung, specifically within alveolar type II cells. Expression in the fetal lung and in rat type II cells correlated with the expression of the surfactant proteins. LPCAT expression in fetal lung explants was sensitive to dexamethasone and FGFs. KGF was a potent stimulator of LPCAT expression in cultured adult type II cells. We hypothesize that LPCAT plays a critical role in regulating surfactant phospholipid biosynthesis and suggest that understanding the regulation of LPCAT will offer important insight into surfactant phospholipid biosynthesis.