Particulate matter (PM) has been associated with a variety of negative health outcomes in children involving the respiratory system and early development. However, the precise mechanisms to explain how exposure to airborne particles may cause adverse effects in children are unknown. To study their influence on early postnatal development, a simple, laminar diffusion flame was used to generate an aerosol of soot and iron particles in the size range of 10 to 50 nm. Exposure of 10-day-old rat pups to soot and iron particles was for 6 h/day for 3 days. The lungs were examined following a single injection of bromodeoxyuridine (BrdU) 2 h prior to necropsy. Neonatal rats exposed to these particles demonstrated no effect on the rate of cell proliferation within terminal bronchioles or the general lung parenchyma. In contrast, within those regions arising immediately beyond the terminal bronchioles (defined as the proximal alveolar region), the rate of cell proliferation was significantly reduced compared with filtered air controls. These findings strongly suggest exposure to airborne particles during early neonatal life has significant direct effects on lung growth by altering cell division within critical sites of the respiratory tract during periods of rapid postnatal development. Such effects may result in altered growth in the respiratory system that may be associated with lifelong consequences.