The fine structure and physiological properties of chemical synapses that develop between identified leech neurones in culture have been studied by electron microscopy and by quantal analysis. Earlier work has shown that the transmitter liberated by isolated Retzius cells, serotonin, evokes chloride-dependent inhibitory post-synaptic potentials (i.p.s.p.s) in P sensory cells, and also in Retzius cells. When pairs of Retzius cells or Retzius and P sensory cells were placed in close apposition in culture for a few days, their somata extended numerous fine processes which came into contact and interdigitated. In the region of interdigitation, only narrow spaces, approximately 20-25 nm wide separated the membranes. The appearance of the cytoplasm of the two neurones was distinctive: in particular, Retzius cells contained agranular vesicles, as well as abundant dense core vesicles which were not as prevalent in P cells. Structures resembling synapses developed by 4 days, with characteristic vesicles clustered in terminals of the Retzius cell apposed to the post-synaptic membrane. In the presence of raised Mg or lowered Ca in the culture medium, the i.p.s.p. in the P cell evoked by an impulse in the Retzius cell became diminished in amplitude. The time-to-peak and half-time of decay were unchanged. Under these conditions, with repeated stimulation, quantal fluctuations of these post-synaptic potentials and failures were observed. In addition, there occurred spontaneous events which resembled miniature synaptic potentials and had amplitudes and time courses similar to those of the unitary events evoked by presynaptic impulses. The amplitudes of evoked synaptic potentials in raised Mg were distributed in accord with the Poisson equation. The agreement was good when either the spontaneous miniature potentials or the failures of evoked release were used to calculate m, the mean number of quanta per trial. With larger values of m the results were distributed as predicted by the binomial equation. These morphological and electrophysiological experiments together indicate that the inhibitory potentials observed in P cells result from quantal units of transmitter released by presynaptic terminals of the Retzius cell which are in close apposition to the post-synaptic membrane.