This paper describes theory and experiments, taken from biophysics and physiological measurements, to illustrate the technique of signal averaging. In the process, students are introduced to the basic concepts of signal processing, such as digital filtering, Fourier transformation, baseline correction, pink and Gaussian noise, and the cross- and autocorrelation functions. From these computations, the students estimate physically interesting parameters such as the pulse rate and blood flow velocity. They also learn about some of the pitfalls encountered in quantifying the signal and noise components for a meaningful computation of the signal-to-noise ratio.