1. The process of pulmonary ventilation and gas exchange was investigated in twenty-three young patients with chronic severe anaemia, before and after its correction. 2. Various lung volumes, pulmonary mechanics, minute ventilation, oxygen consumption and carbon dioxide production were found to be normal in anaemic patients. 3. There was a mild respiratory alkalosis in anaemia. The arterial oxygen tension was lowered because of a marked widening of the alveolar-arterial oxygen tension gradient. This was mainly because of an increase in the anatomical shunt as well as ventilation/perfusion inequalities. 4. The transfer factor (pulmonary diffusing capacity) in anaemia was very much reduced. The diffusing capacity of the alveolar capillary membrane was usually decreased and volume of blood in the alveolar capillaries usually increased but these changes were not statistically significant.