The electronic band structure of some semiconductor materials, including gallium arsenide (GaAs), have another energy band or sub-band in addition to the valence and conduction bands which are usually used in semiconductor devices. This third band is at a higher energy than the normal conduction band and is empty until energy is supplied to promote electrons to it. The energy stems from the kinetic energy of ballistic electrons. That is, electrons in the conduction band but moving with sufficient kinetic energy can reach the third band.

These electrons either start out below the Fermi level and are given a sufficiently long mean free path to acquire the needed energy by applying a strong electric field, or they are injected by a cathode with the right energy. With forward voltage applied, the Fermi level in the cathode moves into the third band, and reflections of ballistic electrons starting around the Fermi level are minimized by matching the density of states and using the additional interface layers to let the reflected waves interfere destructively.

In GaAs the mobility or drift velocity in the third band is lower than that in the usual conduction band, so with a small increase in the forward voltage, more and more electrons can reach the third band and current decreases. This creates a region of negative incremental resistance in the voltage/current relationship.

When a high enough potential is applied to the diode, the charge carrier density along the cathode becomes unstable, and will develop small slices of low conductivity and high field strength which move from the cathode to the anode. It is not possible to balance the population in both bands, so there will always be thin slices of high field strength in a general background of low field strength. So in practice, with a small increase in forward voltage, a slice is created at the cathode, resistance increases, the slice takes off, and when it reaches the anode a new slice is created at the cathode to keep the total voltage constant. If the voltage is lowered, any existing slice is quenched and resistance decreases again.

The laboratory methods that are used to select materials for the manufacture of Gunn diodes include angle-resolved photoemission spectroscopy.

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