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Objectives: To study the effects of two different classes of drugs in sephadex-induced lung inflammation using rats and explore the potential mechanism (s). Materials and Methods: Effects of dexamethasone (0.3 mg/kg, p.o.) and rosiglitazone (10 mg/kg, p.o.) treatments were evaluated up to 3 days in sephadex challenged rats. 72 h postsephadex administration, broncho-alveolar lavage fluid (BALF) was collected for cell count and cytokine estimation. Lung tissues were harvested for gene expression and histopathology. Results: Dexamethasone treatment resulted in significant inhibition of lymphocytes, monocytes, eosinophils and neutrophils, whereas rosiglitazone inhibited eosinophils and neutrophils only. Further, dexamethasone reduced the elevated levels of prostaglandin E2 (PGE2) and leukotriene B4 (LTB4) after sephadex challenge while rosiglitazone significantly reduced the PGE2 levels without altering LTB4 in the BALF. Hydroxyproline content in rat lung homogenate was significantly reduced with dexamethasone treatment but not with rosiglitazone. Both the drugs were found to suppress matrix metallo proteinase 9, whereas only dexamethasone showed inhibition of tumor necrosis factor-alpha and up-regulation of tissue inhibitor of metalloproteinase 3 (TIMP-3) expression and preserved the broncho-alveolar microstructure. Conclusions: Our results revealed that up-regulation of TIMP-3 corroborated well with dexamethasone mediated inhibition of collagen degradation and restoration of alveolar micro-architecture.