Image-to-image fluctuation due to physiological motion is a major limitation to the accurate detection of neuronal activity with functional MRI. In this paper, a new and general technique for the estimation and compensation of the physiological effects is presented. By simultaneously monitoring the respiration and heart beat during the acquisition of imaging data, and retrospectively synchronizing the imaging data with physiological activity, physiological effects are estimated and removed. This technique does not rely on the periodicity of the respiration or the heart beat, does not affect the signal changes arising from neuronal activation, and is beneficial to images acquired with any speed. Experimental studies performed with FLASH and EPI sequences have demonstrated that the new technique is effective in reducing physiological fluctuation and improving the sensitivity of functional MRI and is generally applicable.