The hierarchy of extracytoplasmic compartmentalization and fibrillar organization as well as the assembly and deposition of collagen fibrils was characterized in the 15-day chick embryo dermis using transmission electron microscopy. At least two levels of extracellular compartmentalization are recognizable at this stage of dermal development. The first compartment consists of a series of narrow channels containing single or small groups (less than 5) of collagen fibrils. These channels course deep within the cell and are open to the extracellular space. The second extracellular compartment consists of fibrils grouped as small bundles in close association with the cell surface and is most often defined by a single fibroblast. A third level of fibril organization and compartmentalization is sometimes apparent at this stage of dermal development consisting of laterally associated bundles, more characteristic of the mature dermis. This compartment is associated with the fibroblast surface, but is less well defined than the fibril channels or bundle-forming compartments. Dermal collagen fibrils within bundles are discontinuous. Numerous fibrils ends are identified from serial sections and the ends gradually taper. These data indicate that the dermal fibroblast compartmentalizes the extracellular space and deposits collagen fibril segments during dermal morphogenesis. A model for the genesis of the extracellular compartments and their role in collagen fibrillogenesis and development of regularly arranged connective tissues, tendon, and cornea has been proposed. Dermal development conforms to this model and we suggest that extracytoplasmic compartmentalization of the steps in matrix assembly and segmental deposition of collagen fibrils are important mechanisms in the development of a wide variety of connective tissues.