The development of isidia in thalli of Pseudevernia furfuracea from the Carnic Alps (North-eastern Italy), and the effects of these structures on CO2 gas exchanges were investigated. The ontogenetic events were studied by comparison of sections stained with different histochemical tests and SEM observations. A high cell turnover rate in both symbiotic partners is the first sign of isidium development, followed by an increased aplanosporogenesis of algae and growth of neighbouring medullary hyphae which become oriented upwards. Large nuclei and an intense cytoplasm activity characterize the mycobiont cells. The surface of very young isidia shows an irregular structure of spherical to ovoid protruding tips of perpendicular cortical hyphae, that are later organised in a pseudomeristematic area similar to that observed in the apex of growing lobes. CO2 gas exchange measurements carried out in the laboratory confirmed the high metabolic activity of isidia. At optimal water content and favourable light conditions, isolated isidia had rates of gross photosynthesis and dark respiration that were twice those of non-isidiate lobes. Isolated isidia also had a very low CO2 saturation point, probably because of their favourable surface/volume ratio, and a high light saturation, probably linked to their high content of photosynthetic pigments. The different roles played by isidia in the biology of Pseudevernia furfuracea, and particularly their rejuvenating effect on aged lobes, are discussed, and the presence of thalloconidia is briefly mentioned.