Hypercapnia has traditionally been avoided in paediatric critical illness; indeed, traditional approaches advocated hypocapnia in a number of disease states. However, recent advances in understanding of the role of excessive tidal stretch has prompted clinicians to avoid high tidal volumes or plateau pressures, and to tolerate the resulting ‘permissive’ hypercapnia. Advances in understanding of the biology of hypercapnia have led to consideration of an active role for hypercapnia in the pathogenesis of inflammation and tissue injury. Newer data suggest that elevated CO 2 may be protective, but in some experimental situations can cause harm. This review assesses the role of ventilatory strategies involving permissive hypercapnia in the management of neonates and children with acute severe respiratory failure. The physiological effects of hypercapnia on the lung and systemic organs are discussed, and evidence from laboratory models of lung and systemic organ injury is considered, demonstrating the potential for hypercapnia to modulate the injury process. The role of permissive hypercapnia in various clinical settings relevant to neonatal and paediatric practice, and the risks and benefits of hypercapnia in specific clinical situations are also considered.