During bud development of the ascidian Polyandrocarpa misakiensis, most of the new tissues are formed from foldings of atrial epithelium. Although the atrial epithelium has been believed to be undifferentiated, we found that this epithelium of P. misakiensis strongly expressed a tissue-restricted antigen, named Pae 1. Cross-reactivity of the antibody was found only in a few differentiated tissues such as branchial epithelium and phagocyte-like cells. In developing buds, the antigen disappeared selectively from the regions where the atrial epithelium forms organ rudiments. These regions corresponded with that of mitotic activity, thickening of the epithelium, swelling of nuclei, the appearance of nucleoli and accumulation of a large amount of RNA. From these observations, we assume that the change in antigen expression indicates a change in the state of differentiation of the atrial epithelium. Although Pae 1 antigen was never detected in functional gut, it was detected in the invaginating gut epithelium. This result indicates that gut cells were derived from the cells which had expressed the antigen. We therefore conclude that the conversion of the atrial epithelium into gut can be regarded as a transdifferentiation-like process.