The basal ganglia are presently implicated in learning, and thyroid deficiency induced neonatally is known to affect mentation. The effects of such a deficiency on the developing causate nucleus might be used to provide insight into structure and function of the normal subcortical brain, as well as possible influences of these extrapyramidal structures on mental retardation. Propylthiouracil was added to the diet of lactating rat dams and observations of the developing caudate nuclei of normal hypothyroid rats were made at 8, 14, 20, 30 and 42 days by using various tissue stains and Golgi-Cox preparations. Seven different types of neurons were distinguished in the caudate nucleus. Differences in the size of cell somata and the varying morphology of axons and dendrites were criteria used to make distinctions. Normally, the nucleus acquires cytoarchitectural complexity during the first three postnatal weeks. Within this period, neuron incidence increases in the caudate neuropil with age while the germinal matrix density decreases. Neuron accumulation reaches a plateau after the third week and cell migration is essentially complete at the end of the first postnatal month as shown by computer analysis of Nissl stained cell counts. Branching of cellular processes, attainment of receptor spines and complexity of the fiber network also appeared during this period. Retardation of structural development with thyroid hormone deficiency was shown by decreased numbers of neurons, inhibition of dendritic arborization, decreased numbers of dendritic spines and a reduced complexity of axonal plexuses. Thyroid deficiency delays cell migration during the first three weeks when compared to age-matched normal controls. The lack of thyroid hormone does not appear to influence the size of neuron somata, and the extent of related dendritic fields, nor does hypothyroidism affect a specific cell type population. Generalized disturbances of caudate nuclear morphological maturation are caused by the deficiency. An apparent compensatory process, including a spurt of neural growth and differentiation, takes place in the period between days 14 and 30 in the deficient animals and a seemingly "normal" caudate cytoarchitecture is seen after the third postnatal week. Quantitative data, however, show that this rapid "catch up" process is inadequate. The developmental imperfection of the caudate nucleus which persists might be a part of the underlying substrate for the mental retardation, disturbed motor performance and perceptual handicaps which are found in the human patient.