We describe a method for determining chemical kinetic constants and diffusion coefficients by measuring the rates of decay of spontaneous concentration fluctuations. The equilibrium of the system is not disturbed during the measurement. We measure the number of molecules of a specified type in a defined open volume as a function of time and compute the time course of the deviations from the thermodynamic mean concentration. The method is based on the principle that the rates of decay of spontaneous microscopic fluctuations are determined by the same phenomenological rate coefficients as those of macroscopic departures from equilibrium which result from external perturbations. Hence, an analysis of fluctuations yields the same chemical rate constants and diffusion coefficients as are measured by conventional procedures. In practice the number of the specified molecules is measured by a property such as absorbance or fluorescence which is specific and sensitive to chemical change. The sample volume is defined by a light beam which traverses the cell. As the molecules appear in or disappear from the light beam, either due to diffusion or chemical reaction, their concentration fluctuations give rise to corresponding fluctuations of the intensity of absorbed or emitted light. This paper presents the theory needed to derive chemical rate constants and diffusion coefficients from these fluctuations in light intensity. The theory is applied to three examples of general interest: pure diffusion in the absence of chemical reaction; the binding of a small rapidly diffusing ligand to a larger slowly diffusing macromolecule; and a unimolecular isomerization. The method should be especially useful in studying highly cooperative systems, relatively noncooperative systems with intermediate states closely spaced in free energy, small systems, and systems not readily subject to perturbations of state.