|Abstract. We propose a model of local circulation in the chromosphere, on spatial scales of supergranule size. Strong damping, through plasma-neutral collisions, of Alfvén waves that are driven by motions below the photosphere provides the heating required in order to balance the radiative losses in the chromosphere. On the basis of a self-consistent plasma-neutral-electromagnetic model, we derive the vertical profile of wave spectrum and power by a novel one-dimensional calculation which (unlike some previous treatments) includes damping effects, evaluated by a classical approach without invoking any anomalous processes. The high-frequency portion of the source power spectrum is strongly damped at lower altitudes, whereas the lower-frequency perturbations are nearly undamped and can propagate into the corona and regions above. As a result, the waves observed above the corona constitute only a fraction of those at the photosphere and (contrary to what was supposed in some earlier discussions), their power does not represent the energy input from the source. The amount of heating by this mechanism, calculated from parameters of a semi-empirical model for quiet-Sun conditions, is largest at lower altitudes and is sufficient to account for the radiative losses in the atmosphere. The heating rate depends on magnetic field strength and therefore varies horizontally when the magnetic field strength does. Since radiative loss is a steep function of temperature, local thermal balance between heating and radiation is reached rapidly, producing higher/lower temperatures in regions of stronger/weaker heating. The resulting uneven distribution of temperature drives chromospheric circulation, which distorts the magnetic field to create a funnel-canopy-shaped magnetic geometry, with strong field concentrated into small areas in the lower chromosphere and relatively uniform field in the upper chromosphere. Our model can solve the energy-source and spatial-distribution problems of chromospheric heating, which is the largest (in terms of amount of energy) dissipation process in the upper solar atmosphere. The remaining outstanding problem of coronal heating involves an order of magnitude less energy but requires heating mechanisms that operate at very high temperatures in the fully ionized, nearly collisionless coronal plasma. Formation of the transition region, the corona, and spicules will be discussed.