Long‐term survival after lung transplantation is limited by chronic allograft dysfunction. The aim of this study was to investigate the effect of locally augmented immunosuppression with liposomal cyclosporine A for inhalation (L‐CsA‐i) for the prevention of bronchiolitis obliterans syndrome (BOS). In a randomized, double‐blind, placebo‐controlled, multi‐center Phase 3 study, 180 LT recipients in BOS grade 0 were planned to receive L‐CsA‐i or placebo in addition to triple‐drug immunosuppression. L‐CsA‐i was administered twice daily via an Investigational eFlow nebulizer to recipients of single (SLT) and bilateral lung transplants (BLT) within 6–32 weeks posttransplant, and continued for 2 years. The primary endpoint was BOS‐free survival. 130 patients were enrolled before the study was prematurely terminated for business reasons. Despite a 2‐year actuarial difference in BOS‐free survival of 14.1% in favor of L‐CsA‐i in the overall study population, the primary endpoint was not met (p = .243). The pre‐defined per protocol analysis of SLT recipients (n = 24) resulted in a treatment difference of 58.2% (p = .053). No difference was observed in the BLT (n = 48) subpopulation (p = .973). L‐CsA‐i inhalation was well tolerated. Although this study failed to meet its primary endpoint, the results warrant additional investigation of L‐CsA‐i in lung transplant recipients. In lung transplant recipients, augmentation of local immunosuppression with inhaled liposomal cyclosporine A to prevent bronchiolotis obliterans syndrome is safe and potentially effective in delaying loss of lung function. Iacono comments on page 9.