Ten palisaded neuromas of the skin were studied immunohistochemically for the presence of S-100 protein, epithelial membrane antigen, neurofilaments, glial fibrillary acidic protein, and positivity with the Leu-7 monoclonal antibody. In all cases, the fascicles of tumor cells were positive for S-100 protein and negative for epithelial membrane antigen; the tumor capsules were negative for the former in all cases but positive for the latter in seven of ten cases. In three lesions, epithelial membrane antigen-positive cells formed sheaths around fascicles of tumor cells. Axons were demonstrated by anti-neurofilament antibody in seven lesions. None of the lesions stained for glial fibrillary acidic protein. All of them showed positivity with the Leu-7 antibody, which stained both tumor spindle cells as well as membranous profiles consistent with myelin sheaths. These results indicate that the tumor is composed of cells of schwannian differentiation whereas the capsule and sheaths surrounding intratumoral fascicles are of perineurial origin. They also indicate the presence of axons, some of which are myelinated. Our findings support the concept of a close relationship between palisaded and traumatic neuroma.