This study involved the development and application of a two-tier diagnostic test measuring college biology students' understanding of diffusion and osmosis after a course of instruction. The development procedure had three general steps: defining the content boundaries of the test, collecting information on students' misconceptions, and instrument development. Misconception data were collected from interviews and multiple-choice questions with free response answers. The data were used to develop 12 two-tier multiple choice items in which the first tier examined content knowledge and the second examined understanding of that knowledge. The conceptual knowledge examined was the particulate and random nature of matter, concentration and tonicity, the influence of life forces on diffusion and osmosis, membranes, kinetic energy of matter, the process of diffusion, and the process of osmosis. The diagnostic instrument was administered to 240 students (123 non-biology majors and 117 biology majors) enrolled in a college freshman biology laboratory course. The students had completed a unit on diffusion and osmosis. The content taught was carefully defined by propositional knowledge statements, and was the same content that defined the content boundaries of the test. The split-half reliability was .74. Difficulty indices ranged from 0.23 to 0.95, and discrimination indices ranged from 0.21 to 0.65. Each item was analyzed to determine student understanding of, and identify misconceptions about, diffusion and osmosis.