Abstract Introduction Acute lung injury often complicates severe sepsis. In Gram-negative sepsis, bacterial endotoxin activates both coagulation and inflammation. Enhanced lung vascular pressures and permeability, increased extravascular lung water content and deteriorated gas exchange characterize ovine endotoxin-induced lung injury, a frequently used model of acute lung injury. Recombinant human activated protein C (rhAPC), with its anticoagulant, anti-inflammatory, fibrinolytic and antiapoptotic effects, reportedly reduces the respirator-dependent days and the mortality of patients with severe sepsis. We speculate whether rhAPC antagonizes endotoxin-induced lung injury in sheep. Methods Two groups of sheep were exposed to Escherichia coli endotoxin (lipopolysaccharide) 15 ng/kg/minute intravenously from 0 to 24 hours; one group received only lipopolysaccharide throughout (n = 8), and the other group received lipopolysaccharide in combination with rhAPC 24 μg/kg/hour from 4 to 24 hours (n = 9). In addition, one group received rhAPC as above as the only intervention (n = 4), and four sham-operated sheep were used for determination of the α and ε isoforms of protein kinase C in pulmonary tissue. Data were assessed by one-way analysis of variance for repeated measurements. Biochemical data were analyzed using Student's t test, or using the Mann–Whitney U test when appropriate. Results Infusion of endotoxin caused lung injury, manifested by increments in pulmonary artery pressure, in pulmonary micro-occlusion pressure, in pulmonary vascular downstream resistance, in pulmonary vascular permeability index, in extravascular lung water index and in deterioration of oxygenation that were all attenuated by infusion of rhAPC. Endotoxemia led to changes in inflammation and coagulation, including pulmonary neutrophil accumulation paralleled by increased TNFα and decreased protein C and fibrinogen in animal plasma, which all improved following infusion of rhAPC. Moreover, rhAPC prevented the translocation of protein kinase C α and ε isoforms from the cytosolic fraction of lung tissue extracts. Conclusion In awake sheep, rhAPC alleviates endotoxin-induced lung injury – as characterized by improvements of oxygenation, coagulation and inflammation, as well as by reversal of pulmonary hemodynamic and volumetric changes.