The theoretical model for perfusion measurement by NMR using arterial labeling of endogenous water is extended to include the effects of transit time and cross-relaxation of tissue water with macromolecules. Water magnetization in rat brain is monitored using the STEAM method to simultaneously determine the transit time, magnetization transfer rate constant, and perfusion. The results show that the transit time in rat brain is quite short, and thus its effect on perfusion measurement is small. It is also demonstrated both theoretically and experimentally that the steady-state effects of cross-relaxation with macromolecules on perfusion measurement are accounted for by a proper control experiment.