After fetal lungs are placed in organ culture, any macrophages arising in them must develop from precursors present at explantation. Whole pseudoglandular lungs from 20 litters of rats were set on an agar medium containing fetal bovine serum on the 14th prenatal day when the metamorphosing embryos do not yet have circulating monocytes. After a day in vitro, 10-30-micron clusters of rounded cells began to appear in the pulmonary connective tissue. They increased in size, displayed mitotic figures, and were supplemented by additional clusters on succeeding days. Late in the second day, cells began to penetrate the visceral pleura and over the next week built up a large population outside. Histochemically, the intrapulmonary foci and emerging cells were reactive for naphthyl acetate esterase and acid phosphatase, and many were stainable for triglyceride. Within the lungs elevated acid phosphatase activity was first seen at 24 hours; it attained the level of activated alveolar macrophages 1-2 days later. After cells had been emerging 4-5 days, comparatively few clusters remained in the stroma, but some cells had crossed into the airway, to be swept along by ciliary currents. Some cultures were injected with submicronic iron oxide particles on the first day. The particles gradually concentrated within the stromal clusters, and a few emerging cells contained them. Emerged cells avidly ingested iron oxide and rhodamine-coated latex microspheres. Cells adhering to the cultures were centers of rosette formation after exposure to sheep erythrocytes opsonized with rabbit antisheep IgG and complement factors. The explants evidently contained precursors of macrophages. Cultural conditions provoked them into dividing and exhibiting activation of lysosomes and capacity for directed migration; our experiments showed the transformed cells to be phagocytic and to have receptors associated with immune phagocytosis. The study indicates that macrophages directly derived from stem cells in embryonic lungs are similar in essentials to macrophages in adult lungs, and that this component of pulmonary immune defense is present in an occult form from almost the outset of development.