The transverse decay of the arterial spin labeling (ASL) signal was measured at four inflow times in the rat brain cortex at 9.4 T. Biexponential T2 decay was observed that appears to derive from different T2 values associated with labeled water in the intravasculature (IV) and extravascular (EV) compartments. A two compartment biexponential model was used to assess the relative contribution of the IV and EV compartments to the ASL signal, without assuming a value for T2 of labeled blood water in the vessels. This novel methodology was applied to estimate the exchange time of blood water into EV tissue space and the oxygen saturation of blood on the arterial side of the vasculature. The mean exchange time of labeled blood water was estimated to be 370±40 ms. The oxygen saturation of the arterial side of the vasculature was significantly less than 100% (∼85%), which may have implications for quantitative functional magnetic resonance imaging studies where the arterial oxygen saturation is frequently assumed to be 100%.