The interaction of mononuclear phagocytes with Cryptococcus neoformans was examined in vitro and in vivo using ultrastructural techniques. Immune serum roughens the surface of the yeast and in the first 2 hr, increases the number of organisms attaching to the macrophage surface, as well as the number of contacts between individual yeasts and the phagocyte. Contact is established by means of thin filopodia and cytoplasmic flaps. During the next few days the macrophages increase in size, and, by intimate apposition of their contiguous cell surfaces, a cellular barrier surrounds the now enclosed yeast. These events are accompanied by thinning of fungal capsule, degradation of the enclosed cryptococcus, and the formation of macrophage polykaryons. Electron cytochemical techniques for peroxidase reveal that these multinucleated cells are formed predominantly by the fusion of stimulated macrophages. Destruction of the enclosed yeast probably results from the secretion of various agents by the surrounding cells.