In this study, we explore the potential of diffuse optical tomography for brain oximetry. While several groups have already reported on the sensitivity of optical measurements to changes in oxyhemoglobin, deoxyhemoglobin, and blood volume, these studies were often limited to single source-detector geometries or topographic maps, where signals obtained from within the brain are projected onto 2-D surface maps. In this two-part study, we report on our efforts toward developing a volumetric optical imaging system that allows one to spatially resolve 3-D hemodynamic effects in rat brains. In part 1, we describe the instrumentation, optical probe design, and the model-based iterative image reconstruction algorithm employed in this work. Consideration of how a priori anatomical knowledge can be incorporated in the reconstruction process is presented. This system is then used to monitor global hemodynamic changes that occur in the brain under various degrees of hypercapnia. The physiologic cerebral response to hypercapnia is well known and therefore allows an initial performance assessment of the imaging system. As expected, we observe global changes in blood volume and oxygenation, which vary linearly as a function of the concentration of the inspired carbon dioxide. Furthermore, experiments are designed to determine the sensitivity of the reconstructions of only 1 mm to inaccurate probe positioning. We determine that shifts can significantly influence the reconstructions. In part 2 we focus on more local hemodynamic changes that occur during unilateral carotid occlusion performed at lower-than-normal systemic blood pressure. In this case, the occlusion leads to a predominantly monohemispherically localized effect, which is well described in the literature. Having explored the system with a well-characterized physiologic effect, we investigate and discuss the complex compensatory cerebrovascular hemodynamics that occur at normotensive blood pressure. Overall, these studies demonstrate the potential and limitations of our diffuse optical imager for visualizing global and focal hemodynamic phenomenon three dimensionally in the brains of small animals. © 2004 Society of Photo-Optical Instrumentation Engineers.