SYNOPSIS. Lateral grafting of tissue was used to compare the relative head-activation and head-inhibition potentials of different Hydra strains. A small piece of tissue taken from one polyp, when grafted to another polyp, induces formation of a head structure when the relative head-activation potential of the donor tissue is sufficiently (i.e., more than some threshold value) higher than the relative head-inhibition potential of the recipient tissue. It was found that a multi-headed mutant strain (mh-1), which produces many extra heads along its body column, has significantly higher head-activation and significantly lower head-inhibition potentials than the standard wild-type strain. This suggests that these potentials play important roles in hydra morphogenesis, and that an imbalance between the two potentials is responsible for the developmental abnormality of mh-1. The significance of this finding is discussed in light of the “positional information” model proposed by Wolpert and his associates and the “lateral inhibition” model proposed by Gierer and Meinhardt.