The effect of interstitial edema on distribution of ventilation is studied in the isolated perfused lobe of dog lungs. Lobes are slowly cycled between a transpulmonary pressure of minus 5 to plus 30 cmH20 by inflating and deflating them at constant rate. Distribution of inspired gas is investigated by injecting a bolus of nitrogen at minimum volume during inflation and monitoring the nitrogen concentration of expired gas during subsequent deflation. Lobe volume and airway pressure are continuously monitored together with nitrogen concentration. Simultaneous plots of pressure-volume curves and nitrogen concentration versus lung volume are obtained with the use of an X-Y recorder. The slope of the "alveolar plateau" and the lung volume at which "phase IV" occur on the nitrogen washout curve are compared with the inflection points on the deflation limb of the pressure-volume curve. It is our objective to determine whether in the isolated perfused lung closing volume can be produced and whether various degrees of pulmonary edema affect closing volume in a predictable manner.