Six 2-year-old Corriedale wethers fitted with rumen and abomasal cannulas were given a lucerne hay to appetite then at restricted intakes, first as chopped hay (CH) then as ground and pelleted hay (GP). Voluntary feed consumption (VFC) was 43% greater on GP hay. Water intake increased as feed intake increased and was greater on GP. Organic matter digestibility (OMD) decreased as intake increased (P < 0.001) but was greater on GP hay at restricted intakes (P < 0.001). Potential OMD was marginally greater for GP hay. The digestibility of fibre constituents decreased as intake increased but was not significantly affected by grinding and pelleting. Rumen OM content and OM flow to the duodenum increased as intake increased on CH hay (P < 0.001), but only rumen OM content increased with grinding and pelleting (P < 0.001). Consequently, the mean retention times (MRT) of solutes, particles, and microbial protein decreased as intake increased (P < 0.001) and increased with grinding and pelleting (P < 0.001). However, at VFC, the MRT of each component was not affected by grinding and pelleting. Nitrogen digestibility decreased as intake increased but was greater on GP hay at restricted intakes. Non-ammonia nitrogen flow to and digestion in the intestines increased with intake but was not affected by grinding and pelleting. Ammonia synthesis in the rumen increased as feed intake increased (P < 0.001) but its 26–32% contribution to non-ammonia nitrogen flowing to the duodenum, which reflects microbial synthesis, was not affected by intake or grinding and pelleting. It was concluded that rate of passage cannot be accurately predicted because it is a derived parameter, determined by the differential responses of rumen digesta content and digesta outflow to the dietary, environmental, and physiological factors affecting the animal. These differential responses are involved in determining the effects of intake and grinding of hay on its digestibility.