Bronchopulmonary dysplasia (BPD), a lung disease of prematurely-born infants, is characterized in part by arrested development of pulmonary alveolae. We hypothesized that heme oxygenase (HO-1) and its byproduct carbon monoxide (CO), which are thought to be cytoprotective against redox stress, mitigate lung injury and alveolar simplification in hyperoxia-exposed neonatal mice, a model of BPD. Three-day old C57BL/6J mice were exposed to air or hyperoxia (FiO₂, 75%) in the presence or absence of inhaled CO (250 ppm for 1 h twice daily) for 21 days. Hyperoxic exposure increased mean linear intercept, a measure of alveolar simplification, whereas CO treatment attenuated hypoalveolarization, yielding a normal-appearing lung. Conversely, HO-1 null mice showed exaggerated hyperoxia-induced hypoalveolarization. CO also inhibited hyperoxia-induced pulmonary accumulation of F4/80⁺, CD11c⁺ and CD11b⁺ monocytes and Gr-1⁺ neutrophils. Further, CO attenuated lung mRNA and protein expression of pro-inflammatory cytokines including the monocyte chemoattractant CCL2 in vivo, and decreased hyperoxia-induced lung type I alveolar epithelial cell CCL2 production in vitro. Hyperoxia-exposed CCL2 null mice, like CO-treated mice, showed attenuated alveolar simplification and lung infiltration of CD11b⁺ monocytes, consistent with the notion that CO blocks lung epithelial cell cytokine production. We conclude that, in hyperoxia-exposed neonatal mice, inhalation of CO suppresses inflammation and alveolar simplification.