Acute Cl2 exposure following industrial accidents or military/terrorist activity causes pulmonary injury and severe acute respiratory distress. Prior studies suggest that antioxidant depletion is important in producing dysfunction, however a pathophysiologic mechanism has not been elucidated. We propose that acute Cl2 inhalation leads to oxidative modification of lung lining fluid, producing surfactant inactivation, inflammation and mechanical respiratory dysfunction at the organ level. C57BL/6J mice underwent whole-body exposure to an effective 60 ppm-hour Cl2 dose, and were euthanized 3, 24 and 48 h later. Whereas pulmonary architecture and endothelial barrier function were preserved, transient neutrophilia, peaking at 24 h, was noted. Increased expression of ARG1, CCL2, RETLNA, IL-1b, and PTGS2 genes was observed in bronchoalveolar lavage (BAL) cells with peak change in all genes at 24 h. Cl2 exposure had no effect on NOS2 mRNA or iNOS protein expression, nor on BAL NO3− or NO2−. Expression of the alternative macrophage activation markers, Relm-α and mannose receptor was increased in alveolar macrophages and pulmonary epithelium. Capillary surfactometry demonstrated impaired surfactant function, and altered BAL phospholipid and surfactant protein content following exposure. Organ level respiratory function was assessed by forced oscillation technique at 5 end expiratory pressures. Cl2 exposure had no significant effect on either airway or tissue resistance. Pulmonary elastance was elevated with time following exposure and demonstrated PEEP refractory derecruitment at 48 h, despite waning inflammation. These data support a role for surfactant inactivation as a physiologic mechanism underlying respiratory dysfunction following Cl2 inhalation.