How exactly does nitrous oxide react with food?

Nitrous Oxide is approved for use as a food additive (also known as E942), specifically as an aerosol spray propellant.
Nitrous Oxide is extremely soluble in fatty compounds, including cream and other substances used for cooking.

In a cream dispenser, the gas is dissolved in the substance, and until the dispenser is used the substance inside remains in its liquid state. Once the cream dispenser is used and the substance reaches the air (when the Nitrous Oxide gas merges with oxygen), a chemical reaction takes place which transforms the substance into foamy or a much more volumized substance enhanced with flavor.
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