Allantoic epithelium and epithelium from different levels of the digestive tube of the guail embryo were grafted into chick embryo splanchnopleure so that these epitheliums would come into contact with the mesoderm of the developing host digestive tube at a variety of levels. Under these conditions, the allantoic epithelium develops into an epithelium corresponding to the level of the digestive tube at which it was grafted. By contrast, the presumptive fate of epithelium from the small intestine is not modified by the mesenchyme with which it becomes associated. Mesenchyme from the small intestine, on the other hand, always dictates the type of differentiation in epithelial grafts from other levels of the digestive tube.