When hepatocytes are injected into the fat pads of syngeneic rats, they behave like clonogenic units and proliferate to form nodules at the site of transplantation. The probability of formation of nodules was quantitated by use of the serial dilution assay. When hepatocytes are injected into hepatectomized hosts, the probability of formation of nodules is enhanced 8-fold. There is slight decrease in the initial rate of disappearance of hepatocytes transplanted into hepatectomized hosts, but the percentage of hepatocytes that remain at the site of injection after 6 days is the same for both recipient types. Hepatectomy in the recipient animals is accompanied by a parallel increase in DNA synthesis and mitosis in the hepatocytes at the transplantation site. The probability of clone formation was found to be inversely proportional to the time between host hepatectomy and hepatocyte transplantation. The implication of these findings for the mode of action and the nature of the hepatectomy stimulus is discussed.