Diffuse parenchymal lung diseases are a group of disorders that involve the space between the epithelial and endothelial basement membranes and are generally segregated into four major categories. These include the idiopathic interstitial pneumonias, which are further categorized into seven clinical/radiologic/pathologic subsets. These disorders generally share a common pattern of physiologic abnormality characterized by a restrictive ventilatory defect and reduced diffusing capacity (DLCO). Pulmonary function testing is often used and recommended in their assessment and management. The potential clinical application of physiologic testing includes to aid in diagnosis, although its value in differential diagnosis is limited. Pulmonary function testing also aids in establishing disease severity and in defining prognosis. In nonspecific interstitial pneumonia and idiopathic pulmonary fibrosis, severely decreased DLCO has proven valuable in this regard. Similarly, exertional desaturation to less than 88% at baseline testing and a decrease in FVC (greater than 10%) over the course of short-term follow-up identify patients at particular risk of mortality. Finally, physiologic testing, especially spirometry and DLCO, have demonstrated value in monitoring response to therapy and identifying disease progression.