Corticosteroids were first prescribed for preterm neonates to treat respiratory distress syndrome, but they were found to have no beneficial effect in this disorder. About 20 years ago, dexamethasone was first used to treat infants with bronchopulmonary dysplasia who were ventilator dependent after the age of 3 weeks. There were short-term benefits, with an improvement in lung function and a facilitation of endotracheal extubation. During the 1990s, corticosteroid treatment, mainly with dexamethasone in relatively high doses, became very common in neonatal intensive care units. Towards the end of the decade, however, follow-up studies provided evidence of abnormal neurodevelopment, especially in infants treated early (<4 days) with dexamethasone. The precise cause of these neurodevelopmental problems is unclear, but until further evidence has been obtained, the early use of dexamethasone cannot be recommended for preterm infants. This review attempts to provide evidence-based guidelines for postnatal steroid therapy in the management of chronic lung disease.