We previously found that following surgical resection of ~58% of lung units by right pneumonectomy (PNX) in adult canines, oxygen diffusing capacity (DL_O2) fell sufficiently to become a major factor limiting exercise capacity, although the decline was mitigated by recruitment, remodeling and growth of the remaining lung units. To determine if an upper limit of compensation is reached following the loss of even more lung units, we measured pulmonary gas exchange, hemodynamics and ventilatory power requirements in adult canines during treadmill exercise following two-stage resection of ~70% of lung units in the presence or absence of mediastinal distortion. Results were compared to that in control animals following right PNX or thoracotomy without resection (SHAM). Following 70% lung resection, peak O₂ uptake was 45% below normal. Ventilation-perfusion mismatch developed, and pulmonary arterial pressure and ventilatory power requirements became markedly elevated. In contrast, the relationship of DL_O2 to cardiac output (Q) remained normal, indicating preservation of D_LO2/Q ratio and alveolar-capillary recruitment up to peak exercise. The impairment in airway and vascular function exceeded the impairment in gas exchange and imposed the major limitation to exercise following 70% resection. Mediastinal distortion further reduced air and blood flow conductance resulting in CO₂ retention. Results suggest that adaptation of extra-acinar airways and blood vessels lagged behind that of acinar tissue. As more lung units were lost, functional compensation became limited by the disproportionately reduced convective conductance rather than by alveolar diffusion disequilibrium.