During alveolar development and alveolar repair close contacts are established between fibroblasts and lung epithelial cells through gaps in the basement membrane. Using co-culture systems we have investigated whether these close contacts influence synthesis and secretion of the principal surfactant apoprotein (SP-A) by cultured rat lung alveolar type II cells and the synthesis and secretion of type I collagen by fibroblasts. The alveolar type II cells remained cuboidal and grew in colonies on fibroblast feeder layers and on Matrigel-coated cell culture inserts but were progressively more flattened on fixed fibroblast monolayers and plastic. Alveolar type II cells cultured on plastic released almost all their SP-A into the medium by 4 days. Alveolar type II cells cultured on viable fibroblasts or Matrigel-coated inserts above fibroblasts accumulated SP-A in the medium at a constant rate for the first 4 days, and probably recycle SP-A by endocytosis. The amount of mRNA for SP-A was very low after 4 days of culture of alveolar type II cells on plastic, Matrigel-coated inserts or fixed fibroblast monolayers: relatively, the amount of mRNA for SP-A was increased 4-fold after culture of alveolar type II cells on viable fibroblasts. Co-culture of alveolar type II cells with confluent human dermal fibroblasts stimulated by 2- to 3-fold the secretion of collagen type I into the culture medium, even after the fibroblasts' growth had been arrested with mitomycin C. Collagen secretion, by fibroblasts, also was stimulated 2-fold by conditioned medium from alveolar type II cells cultured on Matrigel. The amount of mRNA for type I collagen increased only modestly when fibroblasts were cultured in this conditioned medium. This stimulation of type I collagen secretion diminished as the conditioned medium was diluted out, but at high dilutions further stimulation occurred, indicating that a factor that inhibited collagen secretion also was being diluted out. The conditioned medium contained low levels of IGF-1 and the stimulation of type I collagen secretion was abolished when the conditioned medium was pre-incubated with antibodies to insulin-like growth factor 1 (IGF-1). There are important reciprocal interactions between alveolar type II cells and fibroblasts in co-culture. Direct contacts between alveolar type II cells and fibroblasts appear to have a trophic effect on cultured alveolar type II cells, increasing the levels of mRNA for SP-A. Rat lung alveolar type II cells appear to release a factor (possibly IGF-1) that stimulates type I collagen secretion by fibroblasts.