The development of microsclerotia in nonsclerotial strains ofCoprinus psychromorbidusRedhead and Traquair was studied using light, scanning, and transmission electron microscopy. On winter wheat in a controlled environment, microsclerotia originated through swelling of terminal and intercalary projections in elongate hyphae to produce small, spherical cells. These spherical cells increased in number through prolific budding. Initially they existed in leaf tissues as free cells but by 11 – 14 weeks had formed loose aggregations. At an advanced stage, further budding development was accompanied by a decrease in cell size and a small increase in cell wall diameter. Accumulation of a mucilaginous matrix and electron-dense material between spherical cells and lipid bodies and vacuoles within the cells accompanied maturation of the microsclerotium. Following near total conversion of leaf tissues to fungal thallus after 20 weeks of incubation, microsclerotia formed a single large continuous body between remnants of the epidermis. In winter wheat and fall rye plants naturally infected withC.psychromorbidus, microsclerotia were abundant and developed intercellularly and intracellularly. Often the development of the fungus was extensive near the crown tissues and microsclerotia appeared as white plaques embedded within the leaf sheaths.