To characterize and interpret arterial spin labeling (ASL) reactive hyperemia of calf muscles for a better understanding of the microcirculation in peripheral arterial disease (PAD), we present a physiological model incorporating oxygen transport, tissue metabolism, and vascular regulation mechanisms. The model demonstrated distinct effects between arterial stenoses and microvascular dysfunction on reactive hyperemia, and indicated a higher sensitivity of 2-minute thigh cuffing to microvascular dysfunction than 5-minute cuffing. The recorded perfusion responses in PAD patients (n = 9) were better differentiated from the normal subjects (n = 7) using the model-based analysis rather than characterization using the apparent peak and time-to-peak of the responses. The analysis results suggested different amounts of microvascular disease within the patient group. Overall, this work demonstrates a novel analysis method and facilitates understanding of the physiology involved in ASL reactive hyperemia. ASL reactive hyperemia with model-based analysis may be used as a noninvasive microvascular assessment in the presence of arterial stenoses, allowing us to look beyond the macrovascular disease in PAD. A subgroup who will have a poor prognosis after revascularization in the patients with critical limb ischemia may be associated with more severe microvascular diseases, which may potentially be identified using ASL reactive hyperemia.