This study evaluated the effects of varying tidal volumes (VT) and positive end-expiratory pressure (PEEP) levels on surfactant aggregate conversion and lung function in an animal model of lung injury induced by N-nitroso-N-methylurethane. Lung-injured adult rabbits were initially ventilated using a VT of 10 ml/kg (VT10), a respiratory rate of 30 breaths/min (RR30), and a PEEP of 3.5 cm H2O. A trace dose of radiolabeled rabbit large surfactant aggregates was instilled after the onset of ventilation, and animals were then ventilated at different ventilator settings for 1 h. Ventilation strategies involving a lower VT (VT5, RR60) resulted in significantly superior oxygenation and lower surfactant aggregate conversion rates than strategies involving a higher VT ([VT10, RR30], [VT15, RR20], p < 0.05). Increasing the PEEP level to 8.0 cm H2O improved oxygenation, but it was sustained only with a low VT (VT5, RR60), and deteriorated with a high VT (VT10, RR30). Varying VT but not PEEP levels resulted in significant changes in surfactant aggregate conversion. We conclude that increased surfactant aggregate conversion resulting from suboptimal ventilation of injured lungs may play an important role in the pathophysiology of ventilation-induced lung dysfunction in acute lung injury.