Background Management of pediatric patients with malignant and hematological diseases is frequently associated with pulmonary complications. We assessed pulmonary function at diagnosis and during a 5‐year follow‐up to identify risk factors associated with pulmonary deterioration. Procedure Ninety patients (age range 3–20) who were treated at the Pediatric Hematology‐Oncology Department, Sheba Medical Center, Israel, were entered into the study. Pulmonary function testing was performed at diagnosis and at least twice during the study period. Results At diagnosis and thereafter values of spirometry, total lung capacity, functional residual capacity and diffusion capacity were significantly lower than predicted (P < 0.002 for all indices). The ratio between residual volume and total lung capacity (RV/TLC) was significantly higher than normal at diagnosis and throughout the study (P < 0.001). Age and treatment modalities did not show any effect on lung‐function during the study. A subgroup of seven patients (8%) developed Bronchiolitis obliterans (BO) after stem cell transplantation and development of graft versus host disease (GVHD). These patients' baseline FEF25–75 values (small airway disease) were significantly lower than FEF25–75 values of controls and other patients while all other parameters were similar. The RV/TLC in the BO patients gradually increased relative to other patients during the 5‐year follow‐up. Conclusion Lung‐function in pediatric hemato‐oncological patients at diagnosis is lower than predicted. Abnormal baseline FEF25–75 may be a risk factor for the development of BO in the setting of GVHD after treatment. Careful monitoring, especially of FEF25–75 and RV/TLC at baseline and in the first period after diagnosis. Pediatr Blood Cancer 2008;51:684–688. © 2008 Wiley‐Liss, Inc.