Pleuropulmonary blastoma (PPB) is a malignant neoplasm of the lung that presents in early childhood. The early form of the disease, cystic type I PPB, can be clinically and pathologically deceptive because of its resemblance to some developmental lung cysts. This study reviews 51 cases of type I PPB and 6 lung cysts from relatives of children with PPB. Type I PPB is a delicate multilocular cyst with variable numbers of primitive mesenchymal cells beneath a benign epithelial surface. Rhabdomyoblasts and cartilage nodules are seen in 49% and 40% of cases, respectively. Tumors in the youngest subset of patients, from birth to 2 months of age, are more uniform in composition and cellularity compared with those in older groups. Early tumors have a subtle transition between normal developing lung and tumor, showing bland interstitial mesenchymal cells uniformly expanding the alveolar septa. Presumed regressive changes including cyst wall necrosis are common. This phenomenon may explain the variable and sometimes sparse tumor cellularity seen in some type I PPBs. On a biologic level, this process supports the concept that not all type I PPBs are fated to progress to a type II or III PPB. Factors that control the balance between progression and regression may be important in predicting tumor behavior and determining which patients will benefit from adjuvant chemotherapy. In the meantime, recognition of this lesion as a neoplasm with malignant potential rather than a developmental cystic malformation is vital so the child can receive complete excision and appropriate follow-up care.