PurposeTo assess the effect of macroscopic susceptibility gradients on the gas‐phase referenced dissolved‐phase 129Xe (DPXe) chemical shift (CS) and to establish the robustness of a water‐based referencing system for in vivo DPXe spectra.MethodsFrequency shifts induced by spatially varying magnetic susceptibility are calculated by finite‐element analysis for the human head and chest. Their effect on traditional gas‐phase referenced DPXe CS is then assessed theoretically and experimentally. A water‐based referencing system for the DPXe resonances that uses the local water protons as reference is proposed and demonstrated in vivo in rats.ResultsAcross the human brain, macroscopic susceptibility gradients can induce an apparent variation in the DPXe CS of up to 2.5 ppm. An additional frequency shift as large as 6.5 ppm can exist between DPXe and gas‐phase resonances. By using nearby water protons as reference for the DPXe CS, the effect of macroscopic susceptibility gradients is eliminated and consistent CS values are obtained in vivo, regardless of shimming conditions, region of interest analyzed, animal orientation, or lung inflation. Combining in vitro and in vivo spectroscopic measurements finally enables confident assignment of some of the DPXe peaks observed in vivo.ConclusionTo use hyperpolarized xenon as a biological probe in tissues, the DPXe CS in specific organs/tissues must be reliably measured. When the gas‐phase is used as reference, variable CS values are obtained for DPXe resonances. Reliable peak assignments in DPXe spectra can be obtained by using local water protons as reference. Magn Reson Med 80:431–441, 2018. © 2017 International Society for Magnetic Resonance in Medicine.