The ultrastructure of the Schwann cell layer surrounding the giant axon of the squid Alloteuthis subulata is described, and the permeability of extracellular compartments assessed by exposure to electron-dense tracers. Morphometric analysis is used to deduce the number, size and shape of the Schwann cells, and the routes for ion flux across the Schwann cell layer. Axons (mean diameter 233 microns) were surrounded by a 1-2 microns thick layer of Schwann cells which were approximately 1 micron thick, approximately 70 microns long and approximately 23 microns wide. There were around 62,000 Schwann cells per cm2 axon surface. The outer (abaxonal) surface of the Schwann cells was invaginated, with evidence for a covering of fine Schwann cells processes; the inner (adaxonal) surface of the Schwann cells was less folded. The percentage area occupied by mesaxonal cleft openings to the axon and to the basal lamina was 0.02% and 1.09% respectively. A system of tubules, the glial tubular system, occupied 3.9% of the Schwann cell volume, and opened to both axonal and basal lamina surfaces, with more elaborate lattice-like clusters towards the basal side of the cell. Tubule openings accounted for 0.26% of the surface area facing the axon and 0.37% of the area facing the basal lamina (where there was greater clustering of openings). The electron dense tracers horseradish peroxidase, ionic lanthanum and tannic acid filled mesaxon clefts, glial tubular system and periaxonal space. If ion flux occurred via the mesaxonal clefts, a theoretical series resistance (Rsth) of > 20 omega cm2, would be predicted, whereas if it occurred via the tubular system, the figure would be < 2 omega cm2, closer to physiological estimates. The results presented show that the glial tubular system is likely to be the major route for ion flux into and across the Schwann cell layer, and for clearance of K+ from the periaxonal space during periods of axonal stimulation. The implications for K+ homeostasis in the axonal microenvironment are discussed.