Morphological and biochemical evidence is presented that the visceral extraembryonic endoderm of the 6.5-day mouse embryo will differentiate into parietal endoderm when cultured in contact with extraembryonic ectoderm undergoing transition into trophoblast giant cells. Egg cylinders from 6.5-day embryos were dissected into embryonic and extraembryonic halves and cultured in suspension in vitro for up to 7 days. After 4 days, the endoderm cells of the extraembryonic fragments morphologically resemble parietal endoderm, are associated with a thick basement membrane and synthesize large amounts of the matrix proteins laminin and Type IV procollagen. A similar transition in phenotype is not seen in the endoderm of embryonic fragments, nor in visceral extraembryonic endoderm cells cultured in isolation. In another series of experiments, complete egg cylinders were dissected free of visceral endoderm overlying the extraembryonic ectoderm and then cultured in vitro. The visceral endoderm cells which recolonize the surface of the extraembryonic ectoderm develop a parietal endoderm phenotype and lay down a thick basement membrane. These results suggest that the differentiation of the extraembryonic endoderm of the early mouse embryo into visceral and parietal phenotypes can be influenced by local cell-cell or cell-substrate interactions, and is not determined solely by cell lineage.