The effects of increasing levels of positive end expiratory pressure on gas exchange and pulmonary mechanics were determined utilizing an ex vivo ventilated perfused canine pulmonary lobe. When zero positive end expiratory pressure was used, shunting, weight gain and a decrease in compliance occurred over the four and one-half hour experiment. Shunting was eliminated when 5, 10 or 15 centimeters of water of positive end expiratory pressure were used. However, increasing extravascular fluid sequestration and decreasing pulmonary compliance occurred progressively with increasing levels of positive end expiratory pressure above 5 centimeters of water. Pulmonary artery pressure increased immediately along with end inspiratory pressure, an amount approximately equal to the increase in positive end expiratory pressure, and this is thought to be the primary cause of the increased rate of fluid sequestration. These experiments suggest that an optimal level of positive end expiratory pressure exists when the shunt can be reduced and oxygenation improved without increasing the rate of extravascular fluid accumulation to the point where long time deleterious effects could outweigh immediate benefits.