Preterm infants often require mechanical ventilation due to lung immaturity including reduced or abnormal surfactant. Since cyclic stretch with cycle-by-cycle variability is known to augment surfactant release by epithelial cells, we hypothesized that such in vivo mechanotransduction improves surfactant maturation and hence lung physiology in preterm subjects. We thus tested whether breath-by-breath variability in tidal volume (VT) in variable ventilation (VV) can be tuned for optimal performance in a preterm lamb model. Preterm lambs were ventilated for 3 h with conventional ventilation (CV) or two variants of VV that used a maximum VT of 1.5 (VV1) or 2.25 (VV2) times the mean VT. VT was adjusted during ventilation to a permissive pCO2 target range. Respiratory mechanics were monitored continuously using the forced oscillation technique, followed by postmortem bronchoalveolar lavage and tissue collection. Both VVs outperformed CV in blood gas parameters (pH, SaO2, cerebral O2 saturation). However, only VV2 lowered PaCO2 and had a higher specific respiratory compliance than CV. VV2 also increased surfactant protein (SP)-B release compared to VV1 and stimulated its production compared to CV. The production and release of proSP-C however, was increased with CV compared to both VVs. There was more SP-A in both VVs than CV in the lung, but VV2 downregulated SP-A in the lavage, whereas SP-D significantly increased in CV in both the lavage and lung. Compared to CV, the cytokines IL-1β, and TNFα decreased with both VVs with less inflammation during VV2. Additionally, VV2 lungs showed the most homogeneous alveolar structure and least inflammatory cell infiltration assessed by histology. CV lungs exhibited over-distension mixed with collapsed and interstitial edematous regions with occasional hemorrhage. Following VV1, some lambs had normal alveolar structure while others were similar to CV. The IgG serum proteins in the lavage, a marker of leakage, were the highest in CV. An overall combined index of performance that included physiological, biochemical and histological markers was the best in VV2 followed by VV1. Thus, VV2 outperformed VV1 by enhancing SP-B metabolism resulting in open alveolar airspaces, less leakage and inflammation and hence better respiratory mechanics.