The transfer factor, Tl,co (with the transfer coefficient, Kco, also known as the transfer factor per unit alveolar volume, [Tl/Va]), is one of the most useful clinical tests of pulmonary function, the only one which specifically focuses on pulmonary microcirculation. It was originally devised in 1909 as a physiological tool to assess the diffusive capacity of the lung as a gas exchanger. It was subsequently developed as a clinical tool, but cumbersome analytical techniques delayed its introduction into clinical medicine until 1950s. The physiology of the carbon monoxide transfer factor (also called the diffusing capacity Dl,co) is based on the Roughton-Forster equation which partitions Dl,co, a conductance, into membrane (Dm) and red cell (thetaVc) diffusion conductances. Recent work (1987-2001) suggests that 70-80% of the resistance to CO (and O2) diffusion may reside in the red cell fraction. The clinical implication is that Tl,co and Kco are 'windows' onto the pulmonary microcirculation. As regards reference values for clinical use, Tl,co depends on age, height and gender. Kco, which is actually a rate constant, is independent of gender, and is affected principally by age. A schema is presented for the clinical interpretation of Tl,co. As Tl,co is derived from the product of Kco and the accessible alveolar volume (Va), examination of these two components (Kco and Va) will usually suggest a specific pathophysiological mechanism as the explanation for a reduction in Tl,co.