To study the relationship between morphologic changes and alteration of lung function, the excised lobes of 21 smokers and one nonsmoker who required lobectomy for small peripheral tumors were inflated and fixed in formalin, and measurements of bronchiolar narrowing and degree of emphysema were made. All patients had comprehensive pulmonary function tests (including diffusing characteristics, the single-breath N2 test, measurements of elastic recoil, and flow-volume measurements with air and helium) performed before lobectomy. Eight of the lobes excised from the smokers had emphysema of grade 15 or more, the greatest being grade 50. Lobes from 11 patients had evidence of airway narrowing. There were 6 lobes with both emphysema and airway narrowing. Pulmonary function was abnormal in some aspect in all lobes except that from the nonsmoker. Whereas the tests of diffusing capacity, particularly the fractional uptake of CO, correlated with the degree of emphysema, the tests of elastic recoil were not predictive of this early degree of emphysema. The degree of small-airway narrowing correlated with maximal mid-expiratory flow rate and the single-breath N2 test. The maximal flow/static recoil pressure curves were the most sensitive indicators of airway abnormality in the patients with emphysema.