The effects of theophylline on pulmonary function and gas exchange during rest, sleep, and exercise were assessed in 10 patients with severe but stable chronic obstructive pulmonary disease (COPD; median FEV1, 31% of predicted). The study was randomized, double blind, placebo controlled, and crossover in design, with each study period lasting 3 wk, and all other usual bronchodilator therapy was continued unchanged. All patients had detailed pulmonary function tests, in addition to exercise testing and overnight sleep studies by standard polysomnography. Theophylline significantly improved gas exchange during rest, exercise, and sleep. Awake resting arterial blood gases showed a higher PaO2 on theophylline (78 [53 to 93] mm Hg, median [range]) than placebo (72 [47 to 83] mm Hg; p < 0.01 by ANOVA), and PaCO2 was lower on theophylline (42 [38 to 54]) compared with placebo (45 [40 to 51], p < 0.05 by ANOVA). Arterial oxygen saturation (SaO2) was significantly higher on theophylline than placebo during exercise and sleep (p < 0.01), and transcutaneous CO2 was lower during sleep (p < 0.05). Theophylline also resulted in significantly improved pulmonary function and reduced trapped gas volume (p < 0.05). Exercise performance was no different during theophylline or placebo phases of the study. Sleep quality, however, was significantly impaired on theophylline. We conclude that theophylline has clinically significant benefits in patients with severe COPD.