Traditional thinking about surfactant proteins has centered around their effects on the biophysical properties of surfactant phospholipids. Accumulated data now suggests that the four major surfactant proteins (SPs) are a biochemically and functionally diverse group of mammalian peptides that have function beyond modification of alveolar surface tension. Alveolar SP-C (SP-C3.7, Mr 21,000) is 35 amino acid peptide isolated from lung surfactant that is synthesized and processed from a 191-197 amino acid precursor (proSP-C21). Although its solubility in organic solvents and avidity for lipid membranes impart properties important for its biophysical activity, SP-C represents a structurally and functionally challenging protein for the alveolar type II cell that must synthesize and traffic the peptide through the regulated secretory pathway. Despite technical and analytical difficulties imposed by its unique structure, our current understanding of SP-C biosynthesis has evolved over the past 10 years. Recent data now require us to consider proSP-C21 as a hybrid molecule incorporating structural and functional features both of bitopic integral membrane proteins as well us more classically recognized propeptide hormones. Our article highlights major developments related to characterization of molecular and cellular mechanisms underlying expression, post-translational processing, and targeting of proSP-C21 that result in production of secreted SP-C3.7.