Abstract Background Congenital diaphragmatic hernia (CDH) is associated with significant neonatal morbidity and mortality. Although prenatal complete tracheal occlusion (cTO) causes hypoplastic CDH lungs to enlarge, improved lung function has not been demonstrated. Furthermore, cTO interferes with the dynamic pressure change and fluid flow associated with fetal breathing. Purpose The purpose of the study was to assess a novel dynamic tracheal occlusion (dTO) device that preserves pressure changes and fluid flow. Methods In this pilot study, CDH was created in fetal lambs at 65 days of gestational age (GA). At 110 days GA, a cTO device (n = 3) or a dTO device (n = 4) was placed in the fetal trachea. At 135 days GA, lambs were delivered and resuscitated. Unoperated lamb co-twins (n = 5), sham thoracotomy lambs (n = 2), and untreated CDH lambs (n = 3) served as controls. Results Tracheal opening pressure, lung volume, lung fluid total protein, and phospholipid were significantly higher in the cTO group than in the dTO and unoperated control groups. Maximal oxygenation and lung compliance were significantly lower in the cTO group when compared with the unoperated control and dTO groups. Conclusion Preliminary results suggest that in the fetal lamb CDH model, dTO restores normal lung morphometrics and function, whereas cTO leads to enlarged but less functional lungs.