Smoking induced inflammation leads to distal airway destruction. However, the relationship between distal airway dysfunction and inflammation remains unclear, particularly in smokers prior to the development of airway obstruction. Seven normal controls and 16 smokers without chronic obstructive pulmonary disease (COPD) were studied. Respiratory function was assessed using the forced oscillation technique (FOT). Abnormal FOT was defined as elevated resistance at 5 Hz (R5). Parameters reflecting distal lung function included frequency dependence of resistance (R5-20) and dynamic elastance (X5). Inflammation was quantified in concentrated bronchoalveolar lavage utilising cell count differential and cytokines expressed as concentration per mL epithelial lining fluid. All control subjects and seven smokers had normal R5. Nine smokers had elevated R5 with abnormal R5-20 and X5, indicating distal lung dysfunction. The presence of abnormal FOT was associated with two-fold higher lymphocyte and neutrophil counts (p<0.025) and with higher interleukin (IL)-8, eotaxin and fractalkine levels (p<0.01). Reactivity of R5-20 and X5 correlated with levels of IL-8, eotaxin, fractalkine, IL-12p70 and transforming growth factor-α (r>0.47, p<0.01). Distal airway dysfunction in smokers without COPD identifies the presence of distal lung inflammation that parallel reported observations in established COPD. These findings were not evident on routine pulmonary function testing and may allow the identification of smokers at risk of progression to COPD.