Lung diffusing capacity for carbon monoxide (Dlco) remains the only noninvasive pulmonary function test to provide an integrated picture of gas exchange efficiency in human lungs. Due to its critical dependence on the accessible “alveolar” volume (Va), there remains substantial misunderstanding on the interpretation of Dlco and the diffusion coefficient (Dlco/Va ratio, Kco). This article presents the physiologic and methodologic foundations of Dlco measurement. A clinically friendly approach for Dlco interpretation that takes those caveats into consideration is outlined. The clinical scenarios in which Dlco can effectively assist the chest physician are discussed and illustrative clinical cases are presented.