Inhaled nitric oxide (NO) is a selective pulmonary vasodilator with beneficial effects on some lung diseases, yet conflicting results, particularly in chronic obstructive pulmonary disease, have been reported. We hypothesized that although inhaled NO would improve gas exchange in the presence of shunt (by increasing blood flow to normal areas), it could worsen gas exchange when areas of low ventilation-perfusion (VA/Q) ratio were present since these areas could be preferentially vasodilated by NO. We examined how approximately 80 ppm inhaled NO altered pulmonary gas exchange in anesthetized ventilated dogs with the following: (1) normal lungs (n = 8), (2) shunt (n = 9, 24.7% shunt) produced by complete obstruction of one lobar bronchus, and (3) VA/Q inequality (n = 8) created by partial obstruction of one lobar bronchus resulting in a bimodal VA/Q distribution with 13% perfusion of low VA/Q areas (0.005 < VA/Q < 0.1) without shunt. Inhaled No significantly reduced pulmonary arterial (p < 0.001) and wedge pressures (p < 0.01) and pulmonary vascular resistance (p < 0.01) without changing cardiac output in each group. In normal lungs, NO did not alter PaO2 or VA/Q inequality. However, with complete obstruction, shunt fell slightly (p < 0.001) with NO. In lungs with VA/Q inequality, NO variably affected VA/Q matching, which was improved in some dogs and worsened in others. In these lungs, changes in pulmonary vascular resistance of the abnormal area of the lung were negatively correlated with changes in VA/Q dispersion (logSDQ) (R = -0.85, p < 0.01) and positively correlated with PaO2 (R = 0.79, p < 0.05). We conclude that NO has net effects on pulmonary gas exchange, depending on the underlying lung pathology consistent with competing vasodilatory effects on the normal and abnormal areas that receive the gas.