What is learned during perceptual learning? We address this question by analyzing how perceptual inefficiencies improve over the course of perceptual learning (Dosher & Lu, 1998). Systematic measurements of human performance as a function of both the amount of external noise added to the signal stimulus and the length of training received by the observers enable us to track changes of the characteristics of the perceptual system (e.g., internal noise[s] and efficiency of the perceptual template) as perceptual learning progresses, and, therefore, identifies the mechanism(s) underlying the observed performance improvements. Two different observer models, the linear amplifier model (LAM) and the perceptual template model (PTM), however, have led to two very different theories of learning mechanisms. Here we demonstrate the failure of an LAM-based prediction - that the magnitude of learning-induced threshold reduction in high external noise must be less or equal to that in low external noise. In Experiment 1, perceptual learning of Gabor orientation identification in fovea showed substantial performance improvements only in high external noise but not in zero or low noise. The LAM-based model was "forced" to account for the data with a combination of improved calculation efficiency and (paradoxical) compensatory increases of the equivalent internal noise. Based on the PTM framework, we conclude that perceptual learning in this task involved learning how to better exclude external noise, reflecting retuning of the perceptual template. The data provide the first empirical demonstration of an isolable mechanism of perceptual learning. This learning completely transferred to a different visual scale in a second experiment.