When material extracted by 1 M acetic acid from the dissociation medium of sea urchin embryos is added at low concentrations to isolated primary mesenchyme cells, it induces skeletogenesis. The same material added to dissociated blastula cells, or to embryos at the blastula stage, stimulates skeleton formation and pigment cell differentiation. On dissociated cells, it also increases cell reaggregation, thymidine incorporation and survival. On embryos, it induces exogastrulation and appearance of extraembryonic pigment cells. The activity of the extract is resistant to raised temperatures and partially to tryptic digestion but is abolished by trypsin treatment followed by heating. The active fraction does not readily filter through Amicon XM-50 and is retarded by column chromatography on Bio-Gel P-60.