Imaging of dynamic changes in blood parameters, functional brain imaging, and tumor imaging are the most advanced application areas of diffuse optical tomography (DOT). When dealing with the image reconstruction problem one is faced with the fact that near-infrared photons, unlike X-rays, are highly scattered when they traverse biological tissue. Image reconstruction schemes are required that model the light propagation inside biological tissue and predict measurements on the tissue surface. By iteratively changing the tissue-parameters until the predictions agree with the real measurements, a spatial distribution of optical properties inside the tissue is found. The optical properties can be related to the tissue oxygenation, inflammation, or to the fluorophore concentration of a biochemical marker. If the model of light propagation is inaccurate, the reconstruction process will lead to an inaccurate result as well. Here, we focus on difficulties that are encountered when DOT is employed for functional imaging of small tissue volumes, for example, in cancer studies involving small animals, or human finger joints for early diagnosis of rheumatoid arthritis. Most of the currently employed image reconstruction methods rely on the diffusion theory that is an approximation to the equation of radiative transfer. But, in the cases of small tissue volumes and tissues that contain low scattering regions diffusion theory has been shown to be of limited applicability Therefore, we employ a light propagation model that is based on the equation of radiative transfer, which promises to overcome the limitations.