The early phase of cartilage destruction by active cellular pannus in rheumatoid joints was observed under light and electron microscopy. In the early phase of pannus formation, cartilage was covered by several layers of fibroblast-like cells. This was also the case at the advancing edge of the pannus. Invasion of the cartilage by macrophage-like cells has been observed to start beneath this layer. Observations under electron microscope demonstrated that the main cells participating in the cartilage destruction at the cartilage-pannus junction were either fibroblast-like or macrophage-like cells, and suggested the possibility that these two types of cells were derived from synovial type A and type B cells. Morphologic observations also suggested a possibility of transformation of the fibroblast-like cell into the macrophage-like cell at the cartilage-pannus junction.