Elastase activity and concentrations of alpha 1-proteinase inhibitor, albumin, and fibronectin were measured in bronchoaleolar lavage (BAL) fluid from ventilated lungs in preterm neonates with lung disease before and after treatment with dexamethasone or indomethacin. Treatment with dexamethasone was associated with a significant decrease in BAL elastase activity but no change in fibronectin, albumin, or alpha 1-proteinase inhibitor concentrations. In contrast, treatment with indomethacin was associated with an increase in BAL elastase activity and fibronectin concentration, with no change in albumin or alpha 1-proteinase inhibitor concentrations. Control groups showed no changes in these BAL fluid biochemical markers during a similar time period. These data indicate that treatment with corticosteroids decreases lung inflammation as measured by BAL elastase activity. Corticosteroid treatment may not inhibit the development of pulmonary fibrosis, because fibronectin concentrations in BAL fluid were unaffected. Indomethacin treatment may augment lung inflammation and fibrosis by increasing BAL elastase activity and fibronectin concentration.