The respiratory epithelium modulates the reactivity of the underlying smooth muscle to bronchoconstrictors via the release of epithelium-derived relaxing factor (EpDRF). The osmolarity of airway surface liquid increases during exercise, leading to bronchoconstriction in a subpopulation of asthmatics (exercise-induced asthma). To understand the consequences of elevated osmolarity in the airways we examined the effects of hyperosmolar solutions on the epithelium and its modulatory relationship with the smooth muscle using the guinea-pig isolated, perfused trachea preparation. This_ preparation allows mechanical responses of the smooth muscle and bioelectric responses of the epithelium to be measured in response to agents applied to the mucosal (apical) or serosal (basolateral) surface of the airway. Elevation of mucosal or serosal osmolarity with NaCl, KCI, D-mannitol, urea, N-methyl-D-glucamine chloride or Na gluconate induced an osmolar concentration- and epithelium-dependent relaxation of methacholine-contracted tracheas. These responses were not mediated by nitric oxide or prostanoids. Relaxation responses, whether initiated via mucosal or serosal application, were preceded by transepithelial depolarization. Elevation of mucosal osmolarity decreased reactivity to mucosally- and serosally-applied methacholine, and inhibited contractile responses of the smooth muscle in response to transmural stimulation of parasympathetic, cholinergic neurons. The relaxation was inhibited by arniloride and DIDS, but not by bumetanide or ouabain. To determine whether the role of EpDRF is altered in pulmonary disease, mechanical and bioelectric responses to hypertonicity were examined in animals 18 hr after treatment with lipopolysaccharide (4 mg/kg; i.p.). After this treatment relaxation responses to hyperosmolar NaCl were potentiated, the transepithelial potential difference was hyperpolarized, and depolarization responses to hyperosmolar NaCl solution were potentiated. These observations demonstrate that the airway epithelium is an osmotic sensor which transduces alterations in mucosal osmolarity into changes in smooth muscle tone, and this property may be altered in lung disease.