The role of tissue interaction in the development of hormone responsiveness was studied in the embryonic mammary gland of the mouse, which becomes sensitive to testosterone on day 14. Previously, the mesenchyme had been identified as the sole target tissue for the hormone, although it was also demonstrated that its response to testosterone required the presence of mammary epithelium. Using autoradiography, we now show that [3H]testosterone or [3H]5 alpha-dihydrotestosterone is bound only by those mesenchymal cells closest to the epithelial mammary bud. When mammary epithelia were experimentally associated with mesenchyme of the mammary region and cultured together for 3 days in vitro, they also became surrounded by several layers of [3H]testosterone-binding mesenchymal cells. Correspondingly, this tissue association was accompanied by a substantial increase of androgen-binding sites in the explants. No hormone-building mesenchymal cells were seen in combinations with epidermis or pancreas epithelium; only salivary epithelium showed a weak positive effect. From these results we conclude that mammary epithelium induces the formation of androgen receptors in adjacent mesenchyme and thereby controls the development of androgen responsiveness in this tissue.