Lung injury due to mechanical ventilation is associated with an impairment of endogenous surfactant. It is unknown whether this impairment is a consequence of or an active contributor to the development and progression of lung injury. To investigate this issue, the present study addressed three questions: Do alterations to surfactant precede physiological lung dysfunction during mechanical ventilation? Which components are responsible for surfactant's biophysical dysfunction? Does exogenous surfactant supplementation offer a physiological benefit in ventilation-induced lung injury? Adult rats were exposed to either a low-stretch [tidal volume (Vt) = 8 ml/kg, positive end-expiratory pressure (PEEP) = 5 cmH2O, respiratory rate (RR) = 54–56 breaths/min (bpm), fractional inspired oxygen (FiO2) = 1.0] or high-stretch (Vt = 30 ml/kg, PEEP = 0 cmH2O, RR = 14–16 bpm, FiO2 = 1.0) ventilation strategy and monitored for either 1 or 2 h. Subsequently, animals were lavaged and the composition and function of surfactant was analyzed. Separate groups of animals received exogenous surfactant after 1 h of high-stretch ventilation and were monitored for an additional 2 h. High stretch induced a significant decrease in blood oxygenation after 2 h of ventilation. Alterations in surfactant pool sizes and activity were observed at 1 h of high-stretch ventilation and progressed over time. The functional impairment of surfactant appeared to be caused by alterations to the hydrophobic components of surfactant. Exogenous surfactant treatment after a period of high-stretch ventilation mitigated subsequent physiological lung dysfunction. Together, these results suggest that alterations of surfactant are a consequence of the ventilation strategy that impair the biophysical activity of this material and thereby contribute directly to lung dysfunction over time.