Epithelial-mesenchymal interaction in the early development of the anterior pituitary gland was examined by chronological observations on fetal pituitary epithelium grafted in vivo with and without its own mesenchyme. At 8.5 days of gestation, the RATHKE'S pouch began to evaginate toward the diencephalon. The mesenchymal tissue around the pouch was at first very sparsely scattered, but then condensed, on day 10 becoming visible under a dissecting microscope. When RATHKE'S pouch epithelia from 10- and 12-day fetuses were transplanted alone under the kidney capsule, they proliferated slightly to form cysts, the cells of which differentiated into ACTH-producing cells, but not into prolactin-producing cells. Pituitary morphogenesis did not occur. When these epithelia were recombined with homotypic mesenchyme and transplanted, the epithelia proliferated remarkably on one side of the wall of the pouch, resulting in formation of a pars distalis that contained both ACTH-producing cells and prolactin-producing cells. Heterotypic mesenchyme, such as lung, dermis and mammary gland mesenchyme, could induce 12-day epithelium, but not 10-day epithelium to develop into pars distalis. Thus, fetal pituitary epithelium has the capacity of autodifferentiation into ACTH-producing cells, not into prolactin-producing cells, and requires mesenchymal support for development of the pars distalis.