Ultrastructural study of a congenital cystic adenomatoid malformation of the lung revealed a persistence of type 2 pneumocytes lining the alveolar and gland-like spaces. The larger cystic areas were lined by normal bronchiolar-type epithelium and were surrounded by a few smooth muscle cells. The interstitium contained undifferentiated mesenchymal cells. No cartilage or bronchial glands were present. These features suggest that this lesion is developmental in nature, with a failure of maturation resulting from an insult occurring early in embryonic life, prior to the onset of cartilaginous differentiation within the lungs.