Photoplethysmography (PPG) is a noninvasive optical method accepted in the clinical use for measurements of arterial oxygen saturation. It is widely believed that the light intensity after interaction with the biological tissue in vivo is modulated at the heartbeat frequency mainly due to pulsatile variations of the light absorption caused by arterial blood-volume pulsations. Here we report experimental observations, which are not consistent with this model and demonstrate the importance of elastic deformations of the capillary bed in the formation of the PPG waveform. These results provide new insight on light interaction with live tissue. To explain the observations we propose a new model of PPG in which pulse oscillations of the arterial transmural pressure deform the connective-tissue components of the dermis resulting in periodical changes of both the light scattering and absorption. These local changes of the light-interaction parameters are detected as variations of the light intensity returned to a photosensitive camera. Therefore, arterial pulsations can be indirectly monitored even by using the light, which slightly penetrates into the biological tissue.