The objective of this study was to investigate the influence of blood transfusion and haemodilution on cerebral oxygenation and haemodynamics in relation to changes in cerebral blood flow velocity (CBFV) and other relevant physiological variables in newborn infants. Thirteen preterm infants with anaemia (haematocrit < 0.33) and ten infants with polycythaemia (haematocrit > 0.65) were studied during blood transfusion and haemodilution respectively using adult red blood cells and partial plasma exchange transfusion. Changes in cerebral concentrations of oxyhaemoglobin (cO2Hb), deoxyhaemoglobin (cHHb), total haemoglobin (ctHb), (oxidized-reduced) cytochrome aa3 (cCyt.-aa3) were continuously measured using near infrared spectrophotometry throughout the whole procedure. Simultaneously, changes of mean CBFV in the internal carotid artery were continuously measured using pulsed Doppler ultrasound. Heart rate, transcutaneous partial pressure of oxygen and carbon dioxide, and arterial O2 saturation were continuously and simultaneously measured. Blood transfusion resulted in increase of cO2Hb, cHHb, ctHb and red cell transport (product of CBFV and haematocrit), whereas CBFV decreased. The increase of cO2Hb exceeded that of cHHb, reflecting improvement of cerebral O2 supply. Haemodilution resulted in a decrease of cO2Hb, cHHb and ctHb, whereas CBFV increased. Red cell transport was unchanged. The decrease of cO2Hb exceeded that of cHHb, reflecting decreased cerebral O2 supply. cCyt.aa3 decreased after blood transfusion and remained unchanged after haemodilution, but the reliability of these results is uncertain. With the exception of a small, but significant increase in transcutaneous partial pressure of oxygen after blood transfusion, the other variables showed no changes. Each blood withdrawal during exchange transfusion resulted in only a significant increase in heart rate without changes in the other variables measured, suggesting unchanged cerebral perfusion. In newborn infants blood transfusion in anaemia results in improvement of cerebral oxygenation, but haemodilution in polycythaemia does not improve cerebral oxygenation despite possible improvement of cerebral perfusion.