The nature of the cells in neurofibromas was studied by electron microscopy and immunoelectron-microscopic examination of S-100 protein. Ultrastructurally, all five neurofibromas studied were found to be composed of Schwann cells, perineurial cells, and intermediate cells, which had features of both perineurial cells and fibroblasts. The Schwann cells had complex, branched cytoplasmic processes and a continuous basal lamina. The perineurial cells were distinguishable from Schwann cells by the presence of numerous pinocytotic vesicles, unbranched slender cytoplasmic processes and a discontinuous basal lamina. The intermediate cells had no basal lamina, but were topographically related to Schwann cells and had a similar fine structure to that of perineurial cells. Thus, they seemed to be modified neoplastic perineurial cells. Immunoelectron-microscopic studies showed the presence of cells with and without S-100 protein in the neurofibromas: cells with S-100 protein resembled Schwann cells ultrastructurally, and those without S-100 protein were perineurial and intermediate cells. Some Schwann cells with S-100 protein in one neurofibroma had numerous pinocytotic vesicles characteristic of perineurial cells, suggesting that Schwann cells and perineurial cells are functional variants of the same cell type. Thus this study showed that neurofibromas were composed of Schwann cells with S-100 protein and perineurial and intermediate cells, including so-called endoneurial fibroblasts, without S-100 protein. Morphological and functional transition seems to occur between Schwann cells and perineurial cells, and between perineurial cells and intermediate cells.