Cryptococcus neoformans is variably encapsulated in vitro, whereas in tissues it develops a large capsule. We observed that cells of a strain with thin capsules, when growing in a standard fungal culture medium, became heavily encapsulated when incubated in serum-free cell culture medium (Dulbecco's modified Eagle's medium [DME]). Capsule size was quantitated physically by measuring cell volume, and chemically by determining the content of a capsular monosaccharide, glucuronate. The CO2/HCO-3 couple stimulated capsule development, resulting in visible enlargement by 3 h after exposure to high CO2/HCO-3. The amount of capsule per cell was directly proportional to the total millimolar CO2/HCO-3 concentration between 24 and 2.4 mM at pH 7.35, but at constant PCO2 (40 torr) and varying [HCO-3], the cells were heavily encapsulated down to pH 6.8. Concentration of CO2/HCO-3 in the physiologic range increased elaboration of polysaccharide into the medium and slowed the cell generation time from 2 to 6 h. Four other first-passage clinical isolates were all heavily encapsulated in DME with CO2/HCO-3, but variably encapsulated in DME without CO2/HCO-3. Exposure of yeast to increased CO2/HCO-3 caused a marked reduction in complement-mediated phagocytosis by mouse macrophages. A stable clone was isolated which contained capsular polysaccharide, but lacked the CO2-inducible phenotype. This clone was avirulent for steroid-treated rabbits. Thus, the prevailing CO2 concentration in mammalian tissues may be one stimulus for capsular polysaccharide synthesis. This could serve as an adaptive mechanism favoring parasite survival in the host.