In 14 cases of hepatocellular carcinoma with capsule, we studied the mechanism of capsule formation by the immunoperoxidase technique using antibodies to types I, III, and IV collagen, antilaminin antibody, and anti-prolyl hydroxylase antibody. Marked round cell infiltration was observed in the noncancerous side of the capsule and around compressed hepatocytes near the capsule. Thin capsules were composed primarily of type III collagen produced by an increased number of fibroblasts, transitional Ito cells, and hepatocytes near the capsule. In thickened capsules, the noncancerous side consisted primarily of type III collagen and the cancerous side of types I and III collagen. Type I as well as type III collagen was produced by fibroblasts, transitional Ito cells, and hepatocytes. The capsule thus formed is suggested to be part of the defense mechanisms against the growth of hepatocellular carcinoma.