Developing lungs of fetal rabbits aged 13 days through early postnatal stages were examined for periodic acid-Schiff (PAS)-lead hematoxylin staining, serotonin fluorescence, and argyrophilia, methods selective for small-granule (neuro) endocrine cells. Later stages were also studied by electron microscopy. These cells arise from precursors that first appear around days 18-19 in the endodermal epithelium; the latter stand out as clear cells from their undifferentiated, glycogen laden neighbors. The cells first form in the main and lobar bronchi, then continue to arise in the lining of newly laid down branches of the extending bronchial tree, tending to concentrate near points of branching. Some cells have been seen to divide, and clusters of two, four, or more soon appear. Morphologically mature neuroepithelial bodies begin to appear in larger bronchi around 23 days, although the largest examples occur in 25-day and older fetuses. After 23 days, additional bodies mature from clear-cell precursors in more recently laid down distal lung, so that by the terminal sac period (around days 28-29) all conducting airways contain them, and the clear cells and clear-cell clusters have virtually disappeared. A pinkish staining by PAS-lead hematoxylin and dense-core secretory granules, which begin to appear in the clear cells, are present in mature small-granule cells whether solitary or aggregated. Argyrophilia is less consistently demonstrable. Fluorescence for serotonin is first evident in mature neuroepithelial bodies at 23 days, increases considerably by 26 days, and reaches a prenatal peak around days 28-29, when neuroepithelial bodies and solitary small-granule cells along the whole conducting bronchial tree may participate. Fluorescence appears to decrease during days 30-31 but strengthens again after birth. Composed of these solitary small-granule cells and neuroepithelial bodies, the pulmonary APUD system of rabbits thus appears substantially functional during the final quarter of gestation.