Developing amacrine and ganglion cells have been graphically reconstructed from a series of 567 consecutive thin sections of the E17 mouse retina on the first day when an obvious inner plexiform layer (IPL) is present and 2 days later than for our previous study of amacrine cell formation at E15 (Hinds and Hinds ('78). At E17 amacrine cells of the neuroblastic layer (normally placed amacrine cells), unlike those at E15, appear to develop directly from ventricular cells; intermediate elements are bipolar-shaped cells with terminal arborization in the IPL. On the other hand, the development of displaced amacrine cells and some normally placed amacrine cells at E17 appears to closely resemble that described for all amacrine cells at E15: derivation from "ganglion cells" by loss of the axon and transformation of the cell. Three lines of evidence support this conclusion. (1) Cells have been found that resemble ganglion cells except that they have only an apparent axon remnant and have somata restricted to the IPL and the immediately adjacent portion of the ganglion cell layer (GCL); amacrine cells transitional between these cells and the smaller and darker, normally placed amacrine cells also occur in the IPL. (2) Axons of two ganglion cells have been found which appeared to be in the process of breaking up and degenerating. (3) The fraction of anaxonic cells with somata in the GCL (two out of 79, or 3%) or in the GCL plus IPL (ten out of 88 or 11%) is too small to account easily for the large fraction (probably at least 45%) of displaced amacrine cells found in the adult, even with conservative assumptions (P less than 0.05). A mathematical model suggests that approximately 40% of the ganglion cells present at E17 will lose their axon, and of these around half will migrate to the neuroblastic layer, while the other half will become displaced amacrine cells. The results suggest a natural explanation for the recent finding that wide field amacrine cells are found with somata on both sides of the IPL, while narrow field amacrine cells are never displaced: the former may be derived from ganglion cells by loss of the axon, while the latter may be formed directly from ventricular cells.