The capacity of the rat anterior hypothalamus, and particularly the suprachiasmatic nucleus (SCN), to develop and differentiate when removed from its normal environment was examined in this study using light and electron microscopy. The hypothalamus from fetuses ranging in age from embryonic day 12 (E 12) to E 16 was transplanted to the anterior chamber of the eye of adult rats. In initial experiments, we found that transplants from E 15 fetuses and older routinely differentiated into fields of neurons with extensive neuropil with an appearance similar to the anterior hypothalamic area. Groups of small, compactly organized neurons were observed only occasionally in this tissue. Ultrastructural analysis of these transplants typically revealed well-differentiated neuronal perikarya and neuropil with a complex synaptic organization similar in appearance to the normal rat anterior hypothalamic area. Occasionally both mature and immature tissue coexisted in some of the transplants. Tissue from young embryos (E 12-14) frequently showed development of a compact, small neuron nucleus with the cytoarchitectonic appearance of the SCN. At least 45 days were required after transplantation for the successful differentiation to occur in this situation. The SCN in these transplants displayed vasoactive intestinal polypeptide-immunoreactive cells and fibers surrounded by vasopressin-immunoreactive cells and fibers, similar to the pattern observed in the normal adult SCN. Our results indicate that the anterior hypothalamus will differentiate normally in oculo and that the phenotypic specification of the SCN occurs prior to the birthdate of its component neurons.