The fine structure of the smallest branches of the hepatic arterial system of the rat was studied with the light and electron microscope by means of alternate thick and thin serial sections. The terminal arborizations of the hepatic artery closely follow the pattern of the portal vein and give rise to a dense network of capillaries in the periportal connective tissue which closely surrounds the bile ducts. These periductal capillaries end by joining (a) interlobular veins, (b) terminal distributing veins, (c) sinusoids directly or, (d) sinusoids in common with branches of the portal vein. The capillaries arising from larger arterioles have well developed precapillary sphincters at their origins, while those arising from terminal arterioles have less prominent smooth muscle cuffs. There are no smooth muscle sphincters at the terminal ends of the capillaries where they join branches of the portal vein or sinusoids. Large endothelial cells usually guard these junctions and frequently their nuclei bulge into the lumens of the vessels and may close them off. Occasionally unmyelinated nerves with vesicles about 500 Å in diameter, some of which are granulated, are in close proximity to the endothelial cells of the capillaries. Endothelial cells also guard the beginnings of sinusoids originating from the portal vein. The sinusoids arising from periductal capillaries are identical in structure to those directly off from the portal vein. Initially the sinusoids from both types of vessels are like capillaries, with a continuous basement membrane around them and an unfenestrated endothelium. A short distance into the parenchyma they lose their basement membrane, become fenestrated and are typical sinusoids.