This study investigates the role of the developing diencephalic floor or mesenchymal tissue in the differentiation of ACTH-producing cells. The adenohypophysial primordia of fetal rats on days 12.5 and 13.5 of gestation were treated with collagenase; some primordia were allowed to retain an association with the brain and mesenchyme, but in others the brain and/or mesenchyme were removed. These different combinations of tissues were cultured and examined by immunohistochemical techniques using antisera against pACTH and synthetic alpha-MSH. Removal of mesenchyme alone had little effect on the development of ACTH cells as compared to primordia maintained with brain and mesenchyme. In contrast, removal of the brain with or without mesenchyme on day 12.5 resulted in a marked decrease of ACTH cells accompanied by a mal-growth of adenohypophysial tissue. Such changes were slight when the brain was separated from day 13.5 primordia. Immunoreactive alpha-MSH cells were sparse or absent in all cases. These results suggest that in fetal rats the developing diencephalic floor is essential for differentiation of ACTH cells before day 13.5 of gestation whereas mesenchyme has no apparent effect.