A particularly powerful paradigm for functional MR imaging of microvascular hemodynamics incorporates paramagnetic materials that create significant image contrast. These include exogenous (lanthanide chelates) and endogenous (deoxygenated hemoglobin) agents for mapping cerebral blood volume and neuronal activity, respectively. Accurate interpretation of these maps requires an understanding of the biophysics of susceptibility-based image contrast. The authors developed a novel Monte Carlo model with which the authors quantified the relationship between microscopic tissue parameters, NMR imaging parameters, and susceptibility contrast in vivo. The authors found vascular permeability to water and the flow of erythrocytes to be relatively unimportant contributors to susceptibility-induced delta R2. However, pulse sequence, echo time, and concentration of contrast agent have profound effects on the vessel size dependence of delta R2. For a model vasculature containing both capillaries and venules, the authors predicted a linear volume fraction dependence for physiological volume changes based on recruitment and dilation, and a concentration dependence that is nonlinear and pulse sequence dependent. Using the model, the authors demonstrated that spin echo functional images have greater microvascular sensitivity than gradient echo images, and that the specifies of the volume fraction and concentration dependence of transverse relaxivity change should allow for robust mapping of relative blood volume. The authors also demonstrated excellent agreement between the predictions of their model and experimental data obtained from the serial injection of superparamagnetic contrast agent in a rat model.