Immersion lithography has an advantage in the numerical aperture of optics by a factor of refractive index n of the liquid filled into the space between the bottom lens and wafer. In case of 193-nm exposure tools, water (n = 1.44) has been found as the best liquid. It is shown, by using imaging simulations, that ArF (193-nm) immersion lithography (NA = 1.05 to 1.23) has almost equivalent performance to F2 (157-nm) dry (NA = 0.85 to 0.93) lithography. Issues in the ArF immersion exposure tools are discussed with fluid-dynamic and thermal simulations results. In the fundamental issues, there seems to be no showstoppers so far, however, there exist several challenges to realize viable exposure tools.