Diaphanography, also known as transillumination, is a breast diagnostic technique based on differences in the diffuse transmittance of visible or near-infrared radiation. Previous papers by the authors reported on investigations of the effect of tumor size, depth at which the tumor is located, the thickness of the breast, and the effect of using photons of different wavelengths. The results from the study reported here indicate that absorption of light in hemoglobin is the basis for the luminance contrast, and shift in the infrared to red transmission ratio, in the diaphanographic image. Evidence is based on known extinction coefficients for oxyhemoglobin and deoxyhemoglobin as a function of wavelength, measurements of the transmitted spectrum in specimens, in vivo dual wavelength transillumination imaging of lesions containing different amounts of blood (bloody and clear cysts, hematomas, veins, fibroadenomas, and carcinomas), and comparison of preoperative diaphanographic images to blood vessel volumes measured by microscopic analysis of surgical specimens. Oxygenation affects the relative proportions of infrared and red light transmitted, but does not influence the diagnosis based on luminance contrast.