Two major morphogenetic events, epithelial conversion and fold formation, occur in the proximal rat colon during the last week of gestation. To evaluate the role of actin microfilaments in these two developmental processes, explants from the proximal colon of 19 day fetal rats were cultured in the presence of vehicle (0.1% dimethylsulfoxide), 0.1, 1.0, or 10 μg/ml of cytochalasin D (CD) for 24–48 hr. Explants as well as 19, 20, and 21 day in vivo controls were prepared for light, fluorescence, and electron microscopy. The distribution of actin filaments was determined by rhodamine-conjugated phalloidin binding and ultrastructural analysis of tissue fixed in the presence of tannic acid. Prior to fold formation, phalloidin binding was enhanced along the entire epithelial-mesenchymal interface. At the onset of fold formation, focal areas of intense fluorescence appeared at irregular intervals along the base of the stratified epithelium. Within 1 day, these focal intensities were localized at the apex of small forming folds. Additional changes occurring at the epithelial-mesenchymal interface in association with fold formation included: (1) ruffling of the previously smooth basal lamina, (2) a shape change in the subjacent mesenchymal cells from elongate to cuboidal along with the appearance of numerous processes abutting the basal lamina, and (3) a unique orientation of the associated collagen fibrils in some presumptive folds. Fold formation was inhibited in > 93% of explants cultured in the presence of 1.0 μ g/ml CD. These explants appeared to be arrested precisely at the onset of fold formation. Epithelial conversion was also incomplete in these explants. These findings indicate an active role for actin in both fold formation and epithelial conversion. © 1993 Wiley-Liss, Inc.