Treatment of adult mice with cortisol decreased the number and frequency of bone marrow precursors of anti-sheep erythrocyte hemolytic plaque-forming cells (P-PFC) and marrow "lymphocytes." However, the more primitive progenitors of P-PFC in marrow were not affected. Treatment of prospective recipients of marrow grafts with cortisol impaired the generation of P-PFC by transplanted primitive progenitor cells, Differentiation with proliferation of P-PFC into mature PFC was less dramatically affected by cortisol. P-PFC were not apparently suppressed directly, since the fall-off of P-PFC did not occur during the first day after administration of cortisol. Thus, cortisol impairs the generation of P-PFC by altering a hemopoietic inductive environment necessary for this step in differentiation of immunocompetent cells.