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A main distinguishing feature of a wireless network compared with a wired network is its broadcast nature, in which the signal transmitted by a node may reach several other nodes, and a node may receive signals from several other nodes simultaneously. Rather than a blessing, this feature is treated more as an interference-inducing nuisance in most wireless networks today (e.g., IEEE 802.11). The goal of this paper is to show how the concept of network coding can be applied at the physical layer to turn the broadcast property into a capacity-boosting advantage in wireless ad hoc networks. Specifically, we propose a physical-layer network coding (PNC) scheme to coordinate transmissions among nodes. In contrast to "straightforward" network coding which performs coding arithmetic on digital bit streams after they have been received, PNC makes use of the additive nature of simultaneously arriving electromagnetic (EM) waves for equivalent coding operation. PNC can yield higher capacity than straight-forward network coding when applied to wireless networks. We believe this is a first paper that ventures into EM-wave-based network coding at the physical layer and demonstrates its potential for boosting network capacity. PNC opens up a whole new research area because of its implications and new design requirements for the physical, MAC, and network layers of ad hoc wireless stations. The resolution of the many outstanding but interesting issues in PNC may lead to a revolutionary new paradigm for wireless ad hoc networking.