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Severe fetal hypoxia poses a significant risk to lung development resulting in severe postnatal complications. Existing chronic hypoxia animal models lack the ability to achieve pathologically reduced fetal oxygen without compromising animal development, placental blood flow, or maternal health. Using an established model of isolated chronic hypoxia involving the Extrauterine Environment for Neonatal Development (EXTEND), we are able to investigate the direct impact of fetal hypoxia on lung development. Oxygen delivery to preterm fetal lambs (105-110 days GA) delivered by cesarean section was reduced, and animals were supported on EXTEND through the canalicular or saccular stage of lung development. Fetal lambs in hypoxic conditions showed significant growth restriction compared to their normoxic counterparts. We also observed modest aberrant vascular remodeling in the saccular group after hypoxic conditions with decreased macrovessel numbers, microvascular endothelial cell numbers, and increased peripheral vessel muscularization. In addition, fetal hypoxia resulted in enlarged distal airspaces and decreased septal wall volume. Moreover, there was a reduction in mature SFTPB and processed SFTPC protein expression concomitant with a decrease in AT2 cell number. These findings demonstrate that maternally-independent fetal hypoxia predominantly impacts distal airway development, AT2 cell number, and surfactant production with mild effects on the vasculature.