How acute respiratory distress syndrome progresses from underlying disease or trauma is poorly understood, and there are no generally accepted treatments resulting in a 40% mortality rate. However, during the inflammation that accompanies this disease, the phospholipase A₂ concentration increases in the alveolar fluids leading to the hydrolysis of bacterial, viral, and lung surfactant phospholipids into soluble lysolipids. We show that if the lysolipid concentration in the subphase reaches or exceeds its critical micelle concentration, the surface tension, γ, of dipalmitoyl phosphatidylcholine (DPPC) or Curosurf monolayers increases and the dilatational modulus, E∗ω, decreases to that of a pure lysolipid interface. This is consistent with DPPC being solubilized in lysolipid micelles and being replaced by lysolipid at the interface. These changes lead to which is the criterion for the Laplace instability that can lead to mechanical instabilities during lung inflation, potentially causing alveolar collapse. These findings provide a mechanism behind the alveolar collapse and uneven lung inflation during ARDS.