Leydig cells in the adult rat testis differentiate during the neonatal-prepubertal period. However, the stimulus for the initiation of their differentiation is still not clear. In the present study our objectives were to test the effects of thyroid hormone and LH on the initiation of precursor cell differentiation into Leydig cells in the prepubertal rat testis. Four groups of Sprague-Dawley rats were used. All treatments began at postnatal Day 1. Rats in groups I, II, and III received daily s.c. injections of saline (200 μl, controls), triiodothyronine (T₃, 50 μg/kg body weight, hyperthyroid), and LH (ovine LH 10 μg/rat/day), respectively. Rats in group IV were made hypothyroid from postnatal Day 1 by adding 0.1% propylthiouracil (PTU) to their mother's drinking water. Testes of rats were collected at 7, 8, 9, 10, 11, 12, 16, and 21 days of age, fixed in Bouin's solution, and embedded in paraffin for immunocytochemical studies. Immunoexpression of 3β-hydroxysteroid dehydrogenase (3β-HSD) and LH receptors (LHR) in testicular interstitial cells (other than the fetal Leydig cells) was observed using the avidin-biotin method. In control rats, out of all spindle-shaped cell types in the testis interstitium, only the peritubular mesenchymal cells showed positive immunolabeling for 3β-HSD, beginning from the postnatal Day 11. However, positive immunolabeling for LHR was first detected in these cells at Day 12, i.e., after acquiring the steroidogenic enzyme activity. In T₃-treated rats 3β-HSD positive spindle-shaped cells were first observed at Day 9 (i.e., 2 days earlier than controls), and LHR-positive cells were first observed on Day 11 (2 days later than obtaining 3β-HSD immunoactivity); they were exclusively the peritubular mesenchymal cells. The 3β-HSD- and LHR-positive spindle-shaped cells were absent in the testis interstitium of LH-injected rats from Days 7 through 12 but were present at postnatal Day 16. In addition, more fetal Leydig cell clusters and fetal Leydig cells in mitosis were present in LH-treated rats compared to rats in all other treatment groups. Following their first detection, the number of positive cells for each protein continued to increase at each subsequent age in controls, T₃-, and LH-injected groups. In PTU rats, 3β-HSD and LHR-positive spindle-shaped cells were absent throughout the experimental period. From these observations, it is possible to suggest the following regarding the developing rat testis interstitium. 1) The precursor cells for the adult generation of Leydig cells in the postnatal rat testis are the peritubular mesenchymal cells. 2) Luteinizing hormone does not initiate the onset of mesenchymal cell differentiation into Leydig cells, instead it delays this process. However, daily LH treatment causes mitosis in fetal Leydig cells and increase in fetal Leydig cell clusters. 3) Thyroid hormone is critical to initiate the onset of mesenchymal cell differentiation into adult Leydig cells.