Normal rat bone marrow cells seeded into a plasma clot diffusion chamber culture developed into erythrocytic and granulocytic colonies in vivo. Chambers implanted into the peritoneal cavity of normal hosts showed erythrocytic colony numbers reaching an initial peak on day 2, declining on days 3--5, and increasing in a secondary growth phase on day 7. Day 2 colonies were evenly dispersed; day 7 colonies were grouped into discrete areas of bursts. Granulocytic colony numbers reached a peak on day 4 and gradually declined through day 7. Cells in various stages of differentiation could be detected in both colony types. Colony numbers were proportional to the number of marrow cells seeded into the chamber. Host animals treated with phenylhydrazine induced a marked increase in erythrocytic colony numbers and size and a decrease in granulocytic colony formation. Host animals treated with endotoxin suppressed erythrocytic colonies while increasing granulocytic colony size. This method may prove advantageous for the study of hematopoietic colony formation in a physiologic environment.