Two types of developmental events can cause an embryonic cell to adopt a fate different from that of its neighbours: during a cell division particular contents may be segregated to only one daughter cell and cells may experience different external cues, commonly in the form of inductive cell interactions. Work on development in the nematode Caenorhabditis elegans suggests that most cell fates are specified without a need for cell interactions. In particular, the gut cell lineage of C. elegans has been used as a primary example of specification by differential segregation of determinants. Here I re-examine the role of induction in gut specification by isolating early blastomeres. In C. elegans, the gut derives from all the progeny of a single blastomere (E) of the eight-cell stage. When a gut precursor cell (EMS) is isolated during the first half of the four-cell stage, gut does not differentiate. Gut differentiation is rescued by recombining EMS with its posterior neighbour (P2), but not by recombining EMS with one or both of the other two cells of the four-cell stage. These results demonstrate that P2 induces EMS to form gut in C. elegans.