The CO photodissociation rate for the unshielded ISM is calculated using recent laboratory results which confirm that photodissociation occurs by way of line absorption. A value of 2.0 x 10 to the -10th/s, an order of magnitude higher than the rate used in the past, is obtained. The new rate and a treatment of the radiative transfer and shielding are used to develop a theory for the CO abundance in the circumstellar envelopes of cool, evolved stars, and results are presented on the spatial variation of CO, C, and C(+). It is shown that these distributions play important roles in determining the observational properties of circumstellar envelopes. 29 references.