Reaction rates, kinetics, inhibition and cellular sites of nonspecific esterases in developing rat lung were studied using biochemical and cytochemical techniques. The rates of hydrolysis of p-nitrophenylthiol acetate (PNTA) and p-nitrophenylthiol butyrate (PNTB) in homogenates were correlated with ultrastructural localization of the esteratic activity. The effects of a number of esterase inhibitors such as diisopropyl phosphorofluoridate were examined in both systems. Throughout lung development there is an increase in the rates of hydrolysis of thiol esters by lung homogenates. Fetal PNTA hydrolases are most abundant in the mesoderm and are widely distributed on membranes (i.e., Golgi complexes, nuclear envelopes, lipid droplets). The major sites of endodermal PNTA hydrolysis are lamellar bodies and their proposed precursors. PNTB hydrolases are more limited in distribution. Regardless of substrate used, adult esteratic activity is most prominent in lamellar bodies of type II epithelial cells. The possible relationship of esterase activity, lamellar bodies and surfactant is discussed.