The role of the cells in the fabrication of a connective tissue matrix, and the structural modifications which accompany cytodifferentiation have been investigated in developing epiphyseal cartilage of fetal rat by means of electron microscopy. Differentiation of the prechondral mesenchymal cells to chondroblasts is marked by the acquisition of an extensive endoplasmic reticulum, enlargement and concentration of the Golgi apparatus, the appearance of membrane-bounded cytoplasmic inclusions, and the formation of specialized foci of increased density in the cell cortex. These modifications are related to the secretion of the cartilage matrix. The matrix of young hyaline cartilage consists of groups of relatively short, straight, banded collagen fibrils of 10 to 20 mmicro and a dense granular component embedded in an amorphous ground substance of moderate electron density. It is postulated that the first phase of fibrillogenesis takes place at the cell cortex in dense bands or striae within the ectoplasm subjacent to the cell membrane. These can be resolved into sheaves of "primary" fibrils of about 7 to 10 mmicro. They are supposedly shed (by excortication) into the matrix space between the separating chondroblasts, where they may serve as "cores" of the definitive matrix fibrils. The diameter of the fibrils may subsequently increase up to threefold, presumably by incorporation of "soluble" or tropocollagen units from the ground substance. The chondroblast also discharges into the matrix the electrondense amorphous or granular contents of vesicles derived from the Golgi apparatus, and the mixed contents of large vacuoles or blebs bounded by distinctive double membranes. Small vesicles with amorphous homogeneous contents of moderate density are expelled in toto from the chondroblasts. In their subsequent evolution to chondrocytes, both nucleus and cytoplasm of the chondroblasts undergo striking condensation. Those moving toward the osteogenic plate accumulate increasingly large stores of glycogen. In the chondrocyte, the enlarged fused Golgi vesicles with dense contents, massed in the juxtanuclear zone, are the most prominent feature of the cytoplasm. Many of these make their way to the surface to discharge their contents. The hypertrophied chondrocytes of the epiphyseal plate ultimately yield up their entire contents to the matrix.