1. Dead leucocytes are constantly found in the pneumonic exudate. They rapidly undergo disintegration. Up to the seventh day they do not form the majority of the cells of the exudate. 2. Polymorphonuclear leucocytes with vitally stained granules are present in the exudate, vessels, and interstitial tissue of the lung in experimental pneumonia, but they are not demonstrable in the general circulation in the same animals. 3. There is a marked impairment of the circulation in the pneumonic lung. 4. The increase in the intra-alveolar pressure exerted by the exudate has no influence upon the circulation. 5. The impaired circulation results from the wide distribution of capillary fibrin thrombi. In man these are, as a rule, distributed with relative uniformity. In the rabbit this is not usually the case. The thrombi are much more abundant in some areas and may lead to localized necrosis. 6. The impairment of the circulation is of importance in bringing about resolution. Only enough blood is allowed to seep through the vessels to nourish the alveolar walls. Consequently very little serum escapes into the alveoli and the autolysis of the exudate by the leucocytes is unhindered. 7. The impairment of the circulation in the pneumonic lung seriously interferes with the action of intravenous therapy upon the local lesion. 8. The exudate in the pneumonic lung can be readily impregnated with a dye injected intrabronchially. This suggests a method of administration of therapeutic agents in pneumonia.