Murine fetal liver cells have been fractionated by fluorescence- activated cell sorting into two fractions termed. For convenience, the pre-CFC and CFC (colony-forming cell) fractions, which differ in their relative binding of the lectin, pokeweed mitogen. The CFC fraction contained a high frequency of CFC (26%) and in liquid cultures stimulated with colony-stimulating factors generated large numbers of differentiated progeny. Consequently, residual CFC could not be detected in such cultures after day 4. In contrast, the pre-CFC fraction contained relatively few CFC (1%) but contained the majority of CFU-S and was able to generate large numbers of new CFC after 5–7 days in liquid culture. This production of CFC from precursor cells was absolutely dependent on factors present in pokeweed-mitogen-stimulated spleen cell conditioned medium (PWM-SCM) or postendotoxin serum (ES) but was not stimulated by known granulocyte or macrophage colony- stimulating factors. CFC production occurred from multipotential precursor cells and all types of CFC were detected (excluding lymphocytes). Clonal analysis of pre-CFC showed that most of the generated CFC arose from relatively few multipotential precursors some of which could generate up to 500 CFC. The data suggested a differentiation sequence of the multipotential precursor cells in which differentiation potentials are successively restricted in the order macrophage, eosinophil, granulocyte-macrophage leads to granulocyte, megakaryocyte, erythroid. The frequency of CFC-generating cells in the pre-CFC fraction was significantly less (ten-fold) than that of CFU-S, suggesting that pre-CFC may be a more ancestral subset of CFU-S. The cell fractions and assay systems described should be of use in defining and purifying factors regulating early phases of hemopoietic differentiation and in defining the differentiation steps involved in the restriction of potentialities of multipotential cells.