A new separation technique has been developed to determine the forward and backward running arterial pressure wave components. It takes into account friction as well as nonlinear effects due to convective acceleration and to the pressure dependence of the arterial compliance. The new method is a combination of two methods treating friction and nonlinearities separately. The method requires the measurements of pressure and flow at one location as well as the knowledge of the area-pressure relationship. The validity of the method was tested by a simulation experiment in which the forward and backward waves were known a priori. It was shown that the new method is significantly more accurate in the predictions of the forward and backward waves when compared to the classical method assuming linearity and no dissipation. The new wave separation method was also applied to simulated aortic waves for (a) a healthy subject and (b) a subject with decreased compliance. Comparison with the classical linear method showed that neglecting nonlinearities leads to an overestimation of the forward and backward pressure wave amplitudes. The errors, however, were in the order of 5 to 10 percent. We concluded that, for most clinical purposes, the improvement using the nonlinear method is of the same magnitude as experimental errors, and thus the linear method would suffice.