The morphogenesis of the epithelial rests of Malassez in rat molars was studied by light and electron microscopy. The epithelial islands immediately after disintegration of the Hertwig's root sheath consisted of a few irregularly shaped cells with scanty rough endoplasmic reticulum, which were surrounded in portions by disrupted basal lamina. Close topographic relationships between the epithelial cells and mesenchymal cells of the dental sac were often observed in this period. After thirty days of age, the epithelial cells started to form ovally shaped epithelial islands consisting of four or five cells, but collagen fibrils still remained in the intercellular spaces. Vacuoles containing collagen fibrils were occasionally observed in the cytoplasm of the epithelial cells during this period in association with an acid phosphatase positive reaction. In more mature rat molars, the epithelial islands were characterized by an increased number of epithelial cells, only rarely observed collagen fibrils in the cytoplasm and the intercellular spaces, and an almost complete lining of basal lamina. The results indicate that the phagocytosis of collagen fibrils by the epithelial cells is a crucial step in the formation of the epithelial rests. The possibility is suggested that interactions with mesenchymal cells of the dental sac and regeneration of the basal lamina may also contribute to the epithelial rest formation.