Lung surfactant (LS) is inactivated in acute respiratory distress syndrome (ARDS). However, the inactivation mechanism remains unknown. Phospholipase (PLA2) plays a normal role in lipid recycling processes, but is present in elevated levels in ARDS, suggesting it plays a role in ARDS pathophysiology. PLA2 hydrolyzes lipids such as DPPC—the primary component of LS—into palmitic acid (PA) and lyso-PC (LPC). Since PA co-crystallizes with DPPC to form rigid, elastic domains, we hypothesize that PLA2-catalyzed degradation establishes a stiff, heterogeneous rheology in the monolayer, which may impair LS function and thus could play a role in LS inactivation during ARDS. Here we study the morphological and rheological evolution of DPPC monolayers as they are degraded by PLA2 using interfacial microbutton microrheometry coupled with fluorescence microscopy. While degrading, domain morphology passes through qualitatively distinct transitions: compactification, coarsening, solidification, aggregation, network percolation, network erosion, and PLA2-rich domain nucleation. Initially, condensed domains relax to more compact shapes, and coarsen via Ostwald ripening and coalescence up until the solidification transition, marked by a distinct roughening of domain boundaries that does not relax. Domains aggregate and eventually form a percolated network. Further degradation leads to erosion of the network and breakage of network connections, along with the nucleation and growth of PLA2-rich domains. The relative enzymatic activity of PLA2, set by the age of the sample, impacts the order and the duration of morphology transitions. The fresher the PLA2, the faster the overall degradation, and the earlier the onset of domain solidification: domains solidify before aggregating with fresh PLA2 samples, but aggregate and percolate before solidification with aged PLA2. Irrespective of the activity of the PLA2, all measured linear viscoelastic surface shear moduli showed the same exponential dependence on condensed phase area fraction throughout monolayer degradation. Monolayer rheology is viscous-dominant until the domain solidification transition, at which point the relative surface elasticity begins to increase. As degradation proceeds further, the relative elasticity starts to decrease once network connections start to be severed.