The alveoli are tiny air sacs in the lungs at the end of each bronchiole. These air sacs are where the exchange of oxygen between the lungs and the blood takes place. Oxygen in the blood is essential for life and the proper functioning of the body. Oxygen breathed into the lungs moves out of the alveoli into the blood vessels that surround them. The blood carries this oxygen from the lungs to the rest of the body.