Alveoli is made up of highly-permeable and thin layers of squamous epithelial cells, and is mostly an unicellualr layer. Blood capillaries have layers of squamous epithelial cells. Air rich in oxygen enters the body through the nose and reaches the alveoli. The deoxygenated 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 very thin and appropriate for the diffusion of gases to take 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. thus, finally oxygen diffuses into blood and carbon dioxide diffuses out of blood into the alveoli.