Mechanical ventilation may lead to an impairment of the endogenous surfactant system, which is one of the mechanisms by which this intervention contributes to the progression of acute lung injury. The most extensively studied mechanism of surfactant dysfunction is serum protein inhibition. However, recent studies indicate that hydrophobic components of surfactant may also contribute. It was hypothesized that elevated levels of cholesterol significantly contribute to surfactant dysfunction in ventilation-induced lung injury. Sprague-Dawley rats (n = 30) were randomized to either high-tidal volume or low-tidal volume ventilation and monitored for 2 h. Subsequently, the lungs were lavaged, surfactant was isolated, and the biophysical properties of this isolated surfactant were analyzed on a captive bubble surfactometer with and without the removal of cholesterol using methyl-beta-cyclodextrin. The results showed lower oxygenation values in the high-tidal volume group during the last 30 min of ventilation compared with the low-tidal volume group. Surfactant obtained from the high-tidal volume animals had a significant impairment in function compared with material from the low-tidal volume group. Removal of cholesterol from the high-tidal volume group improved the ability of the surfactant to reduce the surface tension to low values. Subsequent reconstitution of high-cholesterol values led to an impairment in surface activity. It is concluded that increased levels of cholesterol associated with endogenous surfactant represent a major contributor to the inhibition of surfactant function in ventilation-induced lung injury.