Water exchange across capillary walls couples intra- and extravascular (IV-EV) protons and their magnetization. A bolus i.v. injection of an extracellular MRI contrast agent (MRCA) causes a large increase in the spin-lattice relaxation rate, R1, of water protons in the plasma and blood cells within the capillaries and changes the effective relaxation rate R1eff in tissue via IV-EV water exchange. An analysis of the effect of plasma-red cell and IV-EV water exchange on the MRI-measured influx and permeability of capillaries to the MRCA is presented and focused on the brain and the blood-brain barrier. The effect of arrival of a bolus of an MRCA in the capillary on the relaxation rate R1eff in tissue via IV-EV water exchange occurs more rapidly than the MRCA uptake in tissue and can dominate the initial time curve of the R1eff change before the MRCA uptake in tissue becomes significant. This raises the possibility that (tissue dependent) IV-EV rate of exchange of water molecules can affect estimates of MRCA transfer constant. We demonstrate that an approach that considers IV-EV water exchange and uses the theoretical model of blood-brain tracer distribution developed by Patlak et al. (J Cereb Blood Flow Metab 1983;3:1-7) can lead to an accurate estimate of the MRI-determined influx rate constant of the MRCA and to an underestimation of the tissue blood volume.