Fourteen patients with early sarcoidosis were prospectively studied over a period of 12–24 months. After baseline physiologic measurements they were treated with 40 mg of prednisone daily for 8 weeks and the measurements were repeated. Thereafter, the steroid dosage was reduced to 0–10 mg every other day and the measurements were repeated between the 12th and 24th month. Relatively normal lung volumes (VC, FRC, RV, TLC) and low DLCO increased with 8-week intensive steroid treatment and fell to below the pretreatment levels when the steroid was either tapered or stopped. The Vmax50-air, Vmax50-He, FEF25–75, upstream conductance (Gus) increased during intensive treatment whereas the RL fell and the FEV1/FVC ratio did not change. The CC/TLC, CV/VC, ΔN2, CLdyn/CLst, ΔVmax50 were abnormal in many patients and did not change after 8 weeks of steroid treatment. We concluded that the obstructive defect is common in early sarcoidosis, predominantly in small airways and patchy in nature; the functional derangement is always improved by intensive and adequate steroid therapy and worsened when the drug is tapered or stopped.