Abstract. In this paper, we continue previous investigations with the ultimate goal being a Szegő theory for orthogonal rational matrix functions. We implement here the concept of paraorthogonal functions on the unit circle in the context of rational matrix functions and present some fundamental properties of the para-orthogonal functions in question. We discuss, among other things, the relationship between these functions and orthogonal rational matrix functions as well as existence criteria and some para-orthogonal functions of particular interest.Mathematics subject classification (2010): Primary 47A56, 42C05; Secondary 30E05.