Studies on proliferation and differentiation of granulocyte-monocyte progenitor cells in Chediak-Higashi syndrome (CHS) were done on a 1-month-old patient, using the soft-agar bone marrow culture technique. The number of granulocyte-macrophage colony-forming cells (GM-CFC) was markedly increased, but with a normal distribution into granulocyte, macrophage, or mixed colonies. Morphologic, cytochemical, and ultrastructural studies showed that 70% of the colonies consisted of cells with giant lysosomes typical of CHS, and in the remaining 30% abnormal cells were not detected. The supply of granulocyte-macrophage colony-stimulating factor (GM-CSF) by the patient's peripheral blood leukocytes was markedly decreased. Inhibition of normal in vitro granulopoiesis by the patient's lymphocytes or serum was not demonstrated. It appears that granulocyte progenitors in CHS proliferate normally, or even in excess, probably in response to intramedullary destruction of granulocytes. The majority of the progenitors are intrinsically defective and give rise to colonies that contain the abnormality. In others the defects are unidentifiable, probably due to the immaturity of the specific fusion process of the cytoplasmic granules. The abnormal leukocytes in CHS are also defective in their capacity to provide GM-CSF, and this may account in part to the overt neutropenia. These studies demonstrate that the basic cytoplasmic abnormalities of the granulocytes and monocytes in CHS are embedded in the granulocytic-monocytic committed stem cell.