The ability to quantify pulmonary diffusing capacity and perfusion using dynamic hyperpolarized (129)Xe NMR spectroscopy is demonstrated. A model of alveolar gas exchange was developed, which, in conjunction with (129)Xe NMR, enables quantification of average alveolar wall thickness, pulmonary perfusion, capillary diffusion length, and mean transit time. The technique was employed to compare a group of naïve rats (n = 10) with a group of rats with acute inflammatory lung injury (n = 10), caused by instillation of lipopolysaccaride (LPS). The measured structural and perfusion-related parameters were in agreement with reported values from studies using non-NMR methods. Significant differences between the groups were found in total diffusion length (control 8.5 +/- 0.5 microm, LPS 9.9 +/- 0.6 microm, P < 0.001), in capillary diffusion length (control 2.9 +/- 0.4 microm, LPS 3.9 +/- 1.0 microm, P < 0.05), and in pulmonary hematocrit (control 0.55 +/- 0.06, LPS 0.43 +/- 0.08, P < 0.01), whereas no differences were observed in alveolar wall thickness, pulmonary perfusion, and mean transit time. These results demonstrate the ability of the method to distinguish two main aspects of lung function, namely, diffusing capacity and pulmonary perfusion.