Gaseous exchange refers to the exchange of oxygen and carbon dioxide between the blood and the air in the lungs. This process occurs in small sacs called alveoli, which are found in the lungs. When we inhale, air enters the lungs and travels through the trachea, then it divides into two bronchi and into smaller bronchioles. These bronchioles lead to clusters of alveoli, where the exchange of gases takes place. Oxygen from the inhaled air diffuses through the walls of the alveoli into the blood vessels, while carbon dioxide from the blood diffuses through the walls of the alveoli into the air in the lungs, which we then exhale out of our body. Thus, alveoli are the site of gaseous exchange in the lungs.