The Food and Drug Administration (FDA) said the Pfizer Inc insulin, to be marketed as "Exubera," is the first new way of delivering insulin since the discovery of the hormone in the 1920s.
Pfizer jointly developed the drug and dispenser with Sanofi-Aventis and Nektar Therapeutics and the drug won US approval on Friday, US regulators said.
Exubera was approved as a substitute for some of the insulin shots many diabetics use to control their blood sugar and prevent complications such as heart disease, blindness and limb amputations.
Many patients still will need shots to get a long-acting form of insulin. Exubera is a short-acting insulin that can be taken before meals.
Nektar Therapeutics Inc invented the insulin formulation used in Exubera and the inhaler for delivering it to the lungs and will receive royalty payments on sales.
Pfizer shares were up 3.4% at $25.91 in late afternoon trading on the New York Stock Exchange, whilst Nektar shares rose 4.5% to $21.55 on Nasdaq.
Industry analysts forecast sales of Exubria will top $1 billion a year.