Ventilation-perfusion (VA/Q) inequality is the underlying abnormality determining hypoxemia and hypercapnia in lung diseases. Hypoxemia in asthma is characterized by the presence of low VA/Q units, which persist despite improvement in airway function after an attack. This hypoxemia is generally attenuated by compensatory redistribution of blood flow mediated by hypoxic vasoconstriction and changes in cardiac output, however, mediator release and bronchodilator therapy may cause deterioration. Patients with chronic obstructive pulmonary disease have more complex patterns of VA/Q inequality, which appear more fixed, and changes in blood flow and ventilation have less benefit in improving gas exchange efficiency. The inability of ventilation to match increasing cardiac output limits exercise capacity as the disease progresses. Deteriorating hypoxemia during exacerbations reflects the falling mixed venous oxygen tension from increased respiratory muscle activity, which is not compensated by any redistribution of VA/Q ratios. Shunt is not a feature of any of these diseases. Patients with cystic fibrosis (CF) have no substantial shunt when managed according to modern treatment regimens. Interstitial lung diseases demonstrate impaired oxygen diffusion across the alveolar-capillary barrier, particularly during exercise, although VA/Q inequality still accounts for most of the gas exchange abnormality. Hypoxemia may limit exercise capacity in these diseases and in CF. Persistent hypercapnic respiratory failure is a feature of advancing chronic obstructive pulmonary disease and CF, closely associated with sleep disordered breathing, which is not a prominent feature of the other diseases. Better understanding of the mechanisms of hypercapnic respiratory failure, and of the detailed mechanisms controlling the distribution of ventilation and blood flow in the lung, are high priorities for future research.