Pulmonary surfactant protein B (SP-B) is an essential protein for lowering surface tension in the alveoli. SP-B(1-25), a peptide comprised of the N-terminal 25 amino-acid residues of SP-B, is known to retain much of the biological activity of SP-B. Circular dichroism has shown that when SP-B(1-25) interacts with negatively charged lipid vesicles, it contains significant helical structure for the lipid compositions and peptide/lipid ratios studied here. The effect of SP-B(1-25) on lipid organization and polymorphisms was investigated via DSC, dynamic light scattering, transmission electron microscopy, and solid-state NMR spectroscopy. At 1-3 mol% peptide and physiologic temperature, SP-B(1-25) partitions at the interface of negatively charged PC/PG lipid bilayers. In lipid mixtures containing 1-5 mol% peptide, the structure of SP-B(1-25) remains constant, but (2)H and (31)P NMR spectra show the presence of an isotropic lipid phase in exchange with the lamellar phase below the T(m) of the lipids. This behavior is observed for both DPPC/POPG and POPC/POPG lipid mixtures as well as for both the PC and PG components of the mixtures. For 1-3 mol% SP-B(1-25), a return to a single lamellar phase above the lipid mixture T(m) is observed, but for 5 mol% SP-B(1-25) a significant isotropic component is observed at physiologic temperatures for DPPC and exchange broadening is observed in (2)H and (31)P NMR spectra of the other lipid components in the two mixtures. DLS and TEM rule out the formation of micellar structures and suggest that SP-B(1-25) promotes the formation of a fluid isotropic phase. The ability of SP-B(1-25) to fuse lipid lamellae via this mechanism, particularly those enriched in DPPC, suggests a specific role for the highly conserved N-terminus of SP-B in the packing of lipid lamellae into surfactant lamellar bodies or in stabilizing multilayer structures at the air-liquid interface. Importantly, this behavior has not been seen for the other SP-B fragments of SP-B(8-25) and SP-B(59-80), indicating a critical role for the proline rich first seven amino acids in this protein.