The persistence of intra-alveolar fibrin during acute and chronic inflammatory lung diseases indicates that the normally profibrinolytic environment of the alveolar space has been altered as part of the disease process. We have recently shown that alveolar epithelial cells may control fibrinolysis by expressing both urokinase-type plasminogen activator (uPA) and plasminogen activator inhibitor-1. In this study, monolayers of rat alveolar epithelial cells were used as a model of the alveolar surface and were found to lyse plasma-derived fibrin matrices by a process that was plasminogen and uPA dependent. Fibrinolysis was not achieved by fluid-phase epithelial products but required the presence of epithelial cells, optimally in close contact with the clot surface. Epithelial cell-mediated fibrinolytic activity was augmented 99% by endotoxin and suppressed 66% by dexamethasone. Fibrinolysis also increased 84% as cells aged in culture from day 1 to day 4, during which time the cells lose many type II cell characteristics and assume a type I cell-like phenotype. We conclude that alveolar epithelial cells actively participate in fibrin clearance through mechanisms that require close proximity between epithelial cell and clot surfaces. Alterations in these mechanisms may be partly responsible for the persistence of intraalveolar fibrin during lung inflammation.