Interstitial lung disease (ILD) limits exercise capacity through a variety of complex and intriguing mechanisms, including ventilatory limitation, diffusion impairment, and ventilation-perfusion derangement. Resting pulmonary function testing seldom explains the symptoms nor defines the specific pathophysiology of the individual patient. Cardiopulmonary exercise testing can elucidate the relative contributions of these mechanisms and guide therapy. A fundamental problem in ILD is one of inadequate time for lung inflation during intense exercise, resulting in dynamic hypoinflation relative to the ventilatory demand. Pulmonary rehabilitation is underused in ILD. Functional CT imaging may provide insight into the relationship between structural and physiologic abnormalities of regional pulmonary function. Recent advances in nitric oxide research will perhaps further our understanding of the basic pathophysiology of ILD and provide specific treatment for the associated pulmonary vascular disease.