In species having lungs large enough to develop hydrostatic perfusion zones, increased pulmonary arterial pressure causes blood flow to be redistributed from the lower to the upper lung. The blood flow increase in the upper lung recruits capillaries and increases gas exchange surface area. There is disagreement, however, about whether such capillary recruitment occurs in young animals with small lungs. To investigate this issue, we used in vivo microscopy to directly study capillary perfusion in individual alveolar walls in the upper lungs of neonatal lambs and in older lambs with larger lungs. Pulmonary arterial pressure was elevated by airway hypoxia. In neonatal lambs (<10 d old; n = 7), hypoxia increased pulmonary arterial pressure by 55% but did not cause capillary recruitment. In older lambs (20–61 d old; n = 6), hypoxia increased pulmonary arterial pressure by 40% and caused a 46% increase in recruited capillaries. These results support the hypothesis that capillary recruitment does not occur in newborn lambs when pulmonary arterial pressure increases and implies that there is limited gas exchange reserve. In older lambs, however, gas exchange reserve develops through recruitable capillaries as the lungs mature.