Breathing depends on pulmonary surfactant, a mixture of phospholipids and proteins, secreted by alveolar type II cells. Surfactant requires lamellar bodies (LBs), organelles containing densely packed concentric membrane layers, for storage and secretion. LB biogenesis remains mysterious but requires surfactant protein B (SP-B), which is synthesized as a precursor (pre-proSP-B) that is cleaved during trafficking into three related proteins. Here, we elucidate the functions and cooperation of these proteins in LB formation. We show that the N-terminal domain of proSP-B is a phospholipid-binding and -transfer protein whose activities are required for proSP-B export from the endoplasmic reticulum (ER) and sorting to LBs, the conversion of proSP-B into lipoprotein particles, and neonatal viability in mice. The C-terminal domain facilitates ER export of proSP-B. The mature middle domain, generated after proteolytic cleavage of proSP-B, generates the striking membrane layers characteristic of LBs. Together, our results lead to a mechanistic model of LB biogenesis.