Fetal rabbit skin between 10 and 26 days of gestation was observed by light and electron microscopy. The present study indicates that rapid epidermal differentiation, including the epidermal downgrowths as primordia of the hair follicles, is induced by aggregation of mesenchymal cells associated with growing capillaries beneath the epidermis. In addition, the transformation of these mesenchymal cells to vasoformative cells for rapid capillary growth is further evidenced by this study. Glycogen-storing cells in the periderm are most numerous between 15 and 18 days of gestation, but disappear almost completely by 20 days when a capillary network develops beneath the epidermis.This may imply an active involvement of the periderm in glucose uptake from the amniotic fluid during early developmental stages of the skin.