Surfactant protein B (SP-B) is a hydrophobic, 79 amino acid peptide that regulates the structure and function of surfactant phospholipid membranes in the airspaces of the lung. Addition of SP-B to liposomes composed of DPPC/PG (7:3) leads to membrane binding, destabilization, and fusion, ultimately resulting in rearrangement of membrane structure. The goal of this study was to map the fusogenic and lytic domains of SP-B and assess the effects of altered fusion and lysis on surface activity. Synthetic peptides were generated to predicted helices and/or interhelical loops of SP-B and tested for fusion, lytic, and surface activities. The N-terminal half of SP-B (residues 1-37), which includes the nonhelical N-terminal amino acids in addition to helices 1 and 2, promoted rapid liposome fusion whereas shorter peptides were significantly less effective. The requirements for optimal surface tension reduction were similar to those for fusion; in contrast, helix 1 (residues 7-22) alone was sufficient for liposome lysis. The C-terminal half of SP-B (residues 43-79), which includes helices 3, 4, and 5, exhibited significantly lower levels of fusogenic, lytic, and surface tension reducing activities compared to the N-terminal region. These results indicate that SP-B fusion, lytic and surface activities map predominantly to the N-terminal half of SP-B. Amino acid substitutions in synthetic peptides corresponding to the N-terminal half of SP-B indicated that, in general, decreased fusion or lytic activities were associated with altered surface tension reducing properties of the peptide. However, the presence of fusion and lytic activities alone could not account for the surface tension reducing property of SP-B. We propose a model in which association of helix 1 with lipids leads to membrane permeabilization but not aggregation; helix 2 mediates membrane cross-linking (aggregation), which, in turn, facilitates lipid mixing, membrane fusion, and interfacial adsorption/surface tension reduction.