Polymer chemistry offers the possibility of synthesizing multifunctional nanoparticles which incorporate moieties that enhance diagnostic and therapeutic targeting of cargo delivery to the lung. However, since rules for predicting particle behavior following modification are not well-defined, it is essential that probes for tracking fate in vivo are also included. Accordingly, we designed polyacrylamide-based hydrogel particles of differing sizes, functionalized with a nona-arginine cell-penetrating peptide (Arg(9)), and labeled with imaging components to assess lung retention and cellular uptake after intratracheal administration. Radiolabeled microparticles (1-5 microm diameter) and nanoparticles (20-40 nm diameter) without and with Arg(9) showed diffuse airspace distribution by positron emission tomography imaging. Biodistribution studies revealed that particle clearance and extrapulmonary distribution was, in part, size dependent. Microparticles were rapidly cleared by mucociliary routes but, unexpectedly, also through the circulation. In contrast, nanoparticles had prolonged lung retention enhanced by Arg(9) and were significantly restricted to the lung. For all particle types, uptake was predominant in alveolar macrophages and, to a lesser extent, lung epithelial cells. In general, particles did not induce local inflammatory responses, with the exception of microparticles bearing Arg(9). Whereas microparticles may be advantageous for short-term applications, nanosized particles constitute an efficient high-retention and non-inflammatory vehicle for the delivery of diagnostic imaging agents and therapeutics to lung airspaces and alveolar macrophages that can be enhanced by Arg(9). Importantly, our results show that minor particle modifications may significantly impact in vivo behavior within the complex environments of the lung, underscoring the need for animal modeling.