The diaphragm contracts down, the ribs rotate up and out and the sternum moves forward.

Watch the x-ray image to see this happening (if you can't see the x-ray image on the right, you probably don't have Quicktime installed on this computer).

Air enters, inflating the lung through either the nose or the mouth into the pharynx and trachea before entering the alveoli.

During quiet breathing, the diaphragm moves a centimeter or two up and down, but during exercise, it can move more than 10 cm.