This prospective study evaluated pulmonary gas exchange in patients with severe liver disease, its relationship to intrapulmonary shunting, and its response to liver transplantation. Detailed clinical examinations, chest radiographs, and arterial blood gas estimations were performed on 74 consecutive patients before and after liver transplantation. Fifty percent of the 74 patients had a widened alveolar-arterial (A-a) oxygen gradient (> 15 mm Hg) and 45% a reduced PaCO2 (< 35 mm Hg). Twenty-two percent were hypoxemic (PaO2 < 80 mm Hg). Following transplantation mean PaO2 increased (pre-89 +/- 14 vs. post-94 +/- 8 mm Hg; P = .014) and A-a oxygen gradient decreased (pre-16 +/- 14 vs. post-8 +/- 9 mm Hg; P < .001), despite an increase in PaCO2 (pre-36 +/- 5 vs. post-39 +/- 4; P < .001). To examine this improvement in oxygen exchange further, a subgroup of 26 consecutive patients, with no obvious cardiorespiratory cause for abnormal gas exchange underwent, pre- and post-operative spirometry, measurement of carbon monoxide diffusion capacity (DLCO), intrapulmonary shunt estimations (100% oxygen technique), and echocardiography. In this subgroup, 23% were hypoxemic, 54% had a widened A-a oxygen gradient, and 85% had increased intrapulmonary shunting (> 5%) before transplantation. There was a significant correlation between the degree of pre-transplantation intrapulmonary shunting and A-a oxygen gradient (P < .01). Nineteen of the 22 patients with increased shunting improved following transplantation and improved A-a oxygen gradient correlated well with the reduction in shunting (P < .005). DLCO was reduced in 69% of these patients with a mean value of 73% of predicted. However, the post-transplantation mean DLCO did not increase despite the improvement in oxygen exchange. In conclusion, gas exchange abnormalities are common in patients with severe liver disease but these usually resolve post-transplantation. Intrapulmonary shunting is a major determinant of abnormal oxygen uptake in transplant candidates without evidence of cardiorespiratory disease. Finally, the mechanism for the reduced DLCO is unclear but appears different to that responsible for intrapulmonary shunting and abnormal oxygen exchange.