This article reviews the basic pathophysiologic mechanisms underlying the abnormal pulmonary gas exchange often seen in patients with cirrhosis. To summarize, the following keypoints seem appropriate: (1) Patients with cirrhosis have a low pulmonary vascular tone characterized by a poor or absent hypoxic pressor response. This results in a marked dilation of the pulmonary vasculature. (2) This abnormal pulmonary vascular tone, independently of airway disease, causes VA/Q mismatch and mild to moderate hypoxemia. Yet, as liver disease progresses and hepatocellular function deteriorates, more severe degrees of intrapulmonary shunt emerge and, probably, O2 diffusion limitation ensues, causing severe respiratory failure (see Table 1). (3) At rest, the high cardiac output and minute ventilation of cirrhosis minimize the degree of arterial hypoxemia that otherwise would be expected from the observed degree of both VA/Q inequality and intrapulmonary shunt. During exercise, the relative "normalization' (with respect to metabolic demands) of the hemodynamic and ventilatory status of the patient explains the fall in PaO2. (4) A clear pathogenic mechanism of these pathophysiologic abnormalities is still lacking, although available evidence suggests that both the liver and the endothelial cells may play a pivotal role in the regulation of the pulmonary vascular tone in these patients. (5) To date, no pharmacologic intervention has been effective in treating hypoxemia in these patients. Yet liver transplantation helps in most of them. This observation reinforces the functional nature of the gas exchange abnormalities of cirrhosis.