Each alveolus is made up of highly-permeable and thin layers of squamous epithelial cells. Similarly, the blood capillaries have layers of squamous epithelial cells. Oxygen-rich air enters the body through the nose and reaches the alveoli. The deoxygenated (carbon dioxide-rich) blood from the body is brought to the heart by the veins. The heart pumps it to the lungs for oxygenation. The exchange of O2 and CO2 takes place between the blood capillaries surrounding the alveoli and the gases present in the alveoli.

Thus, the alveoli are the sites for gaseous exchange. The exchange of gases takes place by simple diffusion because of pressure or concentration differences. The barrier between the alveoli and the capillaries is thin and the diffusion of gases takes place from higher partial pressure to lower partial pressure. The venous blood that reaches the alveoli has lower partial pressure of O2 and higher partial pressure of CO2 as compared to alveolar air. Hence, oxygen diffuses into blood. Simultaneously, carbon dioxide diffuses out of blood and into the alveoli.