Light and electron microscopic studies have been carried out on three pigmented basal cell epitheliomas and on cell cultures of two of these tumours, to determine the formation and transfer of pigment and the fine structure of the constituent cells. Scattered in the epithelial tumour buds were many functional melanocytes that contained melanosomes in various stages of development and whose morphology was essentially normal. Many melanophages were present in the dermal stroma, but few transferred melanosomes were to be found in the epithelial tumour cells. Tissue culture studies revealed that melanocytes were present among the proliferating islands of epithelial cells and these contained many melanosomes. However, few melanosomes were found in the epithelial cells. This study indicated a block in the transfer of pigment from the melanocyte to the basal epithelioma cells. Several of the cultured epithelial cells were found to contain dense bundles of filaments resembling amyloid. It is likely that they are abnormal tonofilaments resulting from the differentiation and keratinization of basal cells in vitro.