We have determined the binding affinity and capacity and relative distribution of epidermal growth factor (EGF) receptors in the skin of the Merino sheep fetus before and during the development of the wool follicle population. Autoradiography of tissue sections incubated with [125I]EGF revealed that label was confined predominantly to the epidermis and dermoepidermal junction before follicle formation, at 30 and 55 d of gestation. During follicle initiation (Days 60 to 65), receptor activity was distributed over the epidermis, including the epidermal aggregations of primordia at the dermoepidermal junction. However, receptor concentrations, as revealed by grain counts of autoradiographs, were reduced in these regions when compared with 55-d skin. The receptor distribution over the epidermis and its derivatives did not alter during subsequent follicle development, although the intensity of labeling increased as the follicles matured. Specific receptor binding was not observed above background levels in the dermis and dermal papillae during all stages of follicle development. At follicle maturation, EGF receptors were widely distributed over the cells of the epidermis and the epidermal derivatives of the cutaneous appendages but were particularly localized in the sebaceous glands and outer root sheath (see also Wynn et al. 1989). EGF immunoreactive material has also been found at these sites (du Cros et al. 1992), suggesting an autocrine role for EGF in the regulation of cell function. It is likely that the differentiation-promoting activities of EGF may predominate over those of growth, because the receptor-bearing cells were not members of rapidly proliferating populations.