Rats were fed N-nitrosomorpholine (NNM) at low or high concentrations for 6 or 12 weeks. Both NNM schedules resulted in development of hepatomas. During the early stages of hepatoma induction, liver histotoxic patterns depended only on the dose of carcinogen employed. Necrosis of hepatocytes and proliferation of small, oval-shaped cells occurred when high doses of NNM were applied. Parallel to the proliferation of oval-shaped cells, resurgence of alpha1-fetoprotein (AFP) in rat sera was observed and production of this protein was confined to the oval-shaped cells as shown by immunoperoxidase staining. During proliferation of bile duct epithelium, induced by galactosamine injections, those cells could also stain for AFP, and proliferation of oval-shaped cells concomitant with intracellular AFP staining resulted from restitution of heavily damaged liver. At the stage of malignant conversion, distinct AFP-staining nodules were localized which consisted of neoplastic hepatocytes.