Mesoderm of precardiac and cardiac region ('cardiac' mesoderm) of chick, quail and mouse embryos could induce hepatic epithelium in the endoderm of the anterior half of young quail or chick embryos (anterior endoderm) in vitro as well as in vivo. No species specificity in the induction of hepatic epithelium by the 'cardiac' mesoderm could be observed. The hepatic induction, was controlled strictly by tissue specificity of both endoderm and mesoderm. Replacement of the 'cardiac' mesoderm or the anterior endoderm by non-cardiac mesoderms or endoderms other than the anterior endoderm resulted in failure of hepatic induction. Only the anterior endoderm was found to have competence for hepatic induction, indicating that it was committed, in unknown ways, to react with 'cardiac' mesoderm, and can properly be called pre-hepatic endoderm. Comparison between the development of hepatic endoderm and the hepatic induction potency of 'cardiac' mesoderm, which was most intense during 1- to 1.5- incubation days and decreased gradually with the increase of the stage, suggests that in normal development the 'cardiac' mesoderm actually induces hepatic epithelium in the competent endoderm. Hepatic-induction potency remained up to 6 days, and was found in truncus arteriosus, ventricle and auricle areas and in endocardial and myocardial layers of the heart.