A method suitable for the study of the physiology of absorption of substances from solution and of respiration of Peltigera polydactyla was elaborated making use of discs of tissue which could be floated on solutions. The rate of absorption of hexose sugars by the discs was sensitive to temperature, the presence of inhibitors, such as sodium fluoride and silver nitrate, but relatively insensitive to hydrogen ion concentration. Glucose was absorbed preferentially to fructose from equimolar solutions. Absorption of sugar from sucrose solutions involved inversion by an enzyme system held on the cell surface. This system was relatively unaffected by exposure to moderate temperature, to sodium fluoride or silver nitrate but sensitive to hydrogen ion concentration. Sucrose did not seem to be absorbed as such and the glucose was absorbed preferentially from the products of inversion. All parts of the thallus were equally effective in inversion but absorption was mainly into the algal layer. The entry into the tissues was associated with a respiratory rise.