Standard techniques measuring heart rate (HR) variability do not account for its dependence on the rate and depth of respiration or measure the time relationship between changes in lung volume and HR. We used transfer function analysis to determine the magnitude and time relationship of the HR response to a known change in lung volume in controls and diabetics. This technique demonstrated significant differences between controls and diabetics with varying degrees of autonomic dysfunction. Specifically, reduced supine vagal and increased supine sympathetic HR modulation was found with progression of the autonomic neuropathy. In response to postural change the normal diabetics displayed impaired sympathetic HR modulation. Transfer function analysis yields new insight into the sequence of changes that occur with diabetic autonomic neuropathy and provides an accurate, easily comprehensible measurement of respiratory induced HR variability.