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Celleporella hyalina (L.) is unusual among cheilostomes in producing sexually dimorphic gonozooids which are frontally budded from a layer of sterile autozooids, and also in the possession of a placental system for extracoelomic nutrition of the developing embryo. This paper investigates these two aspects of the reproductive strategy, combining observations of living colonies with ultrastructural study of preserved material. The formation of the male and female gonozooids is described. Female zooids underwent a maximum of four successive reproductive cycles before senescence. About 29% of embryos failed to develop to completion and were prematurely expelled from the ovicell. Spermatogenesis follows the typical cheilostome pattern. Fertilization is internal, and probably occurs during vitellogenesis of the oocyte. Oogenesis involves the activity of a nurse cell. The telolecithal egg increases in volume approximately 15–fold after transfer to the ovicell, and is nourished by a relatively simple placental system formed by the distal epithelium of the maternal zooid.