Human peripheral leukocytes were found to engulf and kill cells of Cryptococcus neoformans. Fewer encapsulated than nonencapsulated cells met this fate, since cryptococcal capsular polysaccharide inhibited phagocytosis. During 10 to 12 hr of incubation of nonencapsulated cells in human serum, sufficient polysaccharide was produced to inhibit phagocytosis by 50%. The polysaccharide inhibitor was found in the sera of four patients with cryptococcosis, but not on the surfaces of their leukocytes. Additional experiments indicated that serum is not essential for effective phagocytosis. However, normal human serum contains anticryptococcal activity which is not inhibited by capsular material. Preliminary findings indicate that the phagocytic index of a patient with cryptococcosis may be correlated with the severity of his disease.