Domestic cattle have limited cardiopulmonary reserve for their body size and oxygen requirements. Therefore, it is plausible that impaired alveolar-arterial gas exchange may be detrimental to energetically expensive traits such as milk production which, like all aerobic processes, requires oxygen. The degree of alveolar-arterial oxygen transfer impairment can be determined by estimating the alveolar-arterial oxygen (A-a O2) pressure gradient from arterial blood-gas tensions. The degree of oxygen transfer impairment is proportional to the A-a O2 pressure gradient: the higher the A-a O2 pressure gradient the less oxygen is transferred to the blood for a given ventilation rate. In this study two cohorts of Holstein-Friesian heifers were followed on one northern Colorado dairy farm. Arterial blood-gas analyses were performed up to 9 d post-calving. Heifers were grouped into quartiles based on A-a O2 pressure gradient so that relative comparisons could be made. Heifers in the lowest (Q1) and highest (Q4) quartile had the least and greatest impairment of alveolar-arterial oxygen transfer, respectively. We hypothesised that milk yield over 60 d would be greatest for heifers in Q1 and would decrease with quartile increments. Hyperventilation, as indicated by hypocapnia, was notable. Despite hypoxia, haematocrit was low. Alveolar-arterial O2 pressure gradient was associated with milk production (P=0·03) when controlling for cohort, treatment for disease and calving difficulty score. Heifers in Q1 produced 1992 kg (95% CI=1858, 2127 kg) of milk when controlling for all other variables. Relative to heifers in Q1, heifers in Q2, Q3 and Q4 produced 130 kg (95% CI=313, −52 kg; P=0·45), 285 kg (95% CI=474, 96 kg; P=0·004) and 169 kg (95% CI=395, −57 kg; P=0.14) less milk, respectively. In conclusion, efficacy of alveolar-arterial oxygen transfer was associated with milk yield in dairy heifers on one farm at moderate altitude.