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Alveolar epithelial cells (AECs) may influence neighboring fibroblasts by the elaboration of prostaglandin E2 (PGE2). This prostanoid can be synthesized via “constitutive” cyclooxygenase (COX)-1 and “inducible” COX-2 enzyme isoforms. We compared AECs isolated from wild-type (WT), COX-1 knockout (KO), and COX-2 KO mice to determine the contribution of COX isoforms to AEC PGE2 synthesis and capacity for suppression of fibroblast proliferation in co-cultures. WT AECs constitutively expressed both COX-1 and COX-2 isoforms by immunoblot analysis. COX-1 KO cells and WT cells comparably augmented PGE2 synthesis following incubation with lipopolysaccharide or interleukin-1, whereas COX-2 KO cells were unable to do so. Surprisingly, however, constitutive generation of PGE2 was also dramatically reduced only in COX-2 KO cells. When co-cultured with WT murine lung fibroblasts, AECs from WT and COX-1 KO animals suppressed serum-induced fibroblast proliferation, whereas COX-2-deficient AECs caused a modest enhancement in fibroblast proliferation. These results indicate that PGE2 synthetic capacity in AECs is predominantly COX-2-dependent under both basal and stimulated conditions. They also demonstrate conclusively that AECs can modulate fibroblast function by the elaboration of suppressive prostanoids. These alterations in AEC phenotype likely contribute to the propensity for pulmonary fibrosis observed in COX-2-deficient mice.