&NA;The effects of intravenous pentobarbital versus nitrous oxide/ halothane inhalation anesthesia on blood gases, distribution of ventilation‐perfusion ratios (VA/Q), and lung volume (FRC) were compared in 8 tracheostomized sheep in the lateral decubitus position. Pentobarbital anesthesia produced no significant changes (from awake control) in arterial blood PO2, or PCO2ventilationperfusion inequality, intrapulmonary shunt, or FRC during either spontaneous breathing or mechanical ventilation with muscle paralysis. With inhalation anesthesia, PaO2, decreased from 132 ± 13 mmHg awake to 106 ± 11 mmHg and 104 ± 6 mmHg (FIO2, all 0.3) during spontaneous and mechanical ventilation. Shunt increased from 1.4 ± 1.0% awake to 10.6 ± 4.5 and 13.9 ± 5.3%, respectively. Mean VA/Q decreased from 0.39 ± 0.07 awake, to 0.21 ± 0.06 and 0.29 ± 0.07. Log standard deviation of VA/Q increased from 0.66 ± 0.12 awake to 0.83 ± 0.28 and 0.89 ± 0.15. FRC decreased from 1.66 ± 0.65 1 to 1.46 ± 0.62 and 1.22 ± 0.63 1, respectively. Differences in response to intravenous versus inhalation anesthesia for the above variables all were statistically significant at P < 0.05. FRC and shunt changes with anesthesia showed significant correlation for both spontaneous (r = ‐0.80) and mechanical ventilation (r = ‐0.77), P < 0.005 for both. We therefore propose that the differences between lung volume and gas exchange effects of intravenous versus inhalation anesthesia in sheep may have been related causally.