Bagassosis developed in three patients following repeated exposure to bagasse handled in the manufacture of mud used for oil drilling operations. Physiologic studies were carried out with prolonged observations. All patients recovered without corticosteroid therapy. Main abnormalities were reduction in lung volumes, diminished diffusing capacity, hypoxemia, and low pulmonary compliance. No airways obstruction or impairment of intrapulmonary gas distribution was noted. Functional defects improved within two months; maximum recovery was achieved after six months. Since all patients were treated symptomatically, the speed and extent of recovery may be considered as a baseline for persons with normal pulmonary function results before and after illness who have had no more than one clinical episode of bagassosis.