Melanocyte-precursor cells have been described previously in telogen and early anagen hair germs by observation of Epon sections using light microscopy. The existence of these precursor cells has not been generally accepted due to lack of ultrastructural evidence. It is our purpose to describe these cells using transmission electron microscopy. We studied hair germs of the dorsal skin of adult mice in the appropriate stages of the hair cycle prior to melanogenesis. Telogen melanocytes are distinguishable from adjacent keratocytes by their lack of desmosomes, lack of coarse clumps of microfilaments, sparsity of ribosomes, unusually few nuclear pores and presence of dendrites. Melanocytes in early anagen show extensive growth with abundant polysomes, elaborate RER and Golgi zones. They still differ from keratocytes in their lack of desmosomes and clumps of microfilament, and also in the occasional presence of premelanosomes.