In homozygous rds mutant mice the photoreceptor cells lack outer segment discs and slowly degenerate. In the heterozygotes the receptor cells develop abnormal outer segments and show altered disc shedding properties as revealed by the pigment epithelial phagosome content. The receptor cells also degenerate at a slower rate than in the homozygotes. The nature of the interaction resulting in dilution of the retinal lesion in the heterozygous retina was analysed in a series of chimaeras consisting of rds/+ and +/+ genotypes, which also differed in colour genes. In 64% of the chimaeras (18 out of 28) presence of both rds/+ and +/+ types of photoreceptors could be detected by electron microscopy. The relative proportion and patch size of the two components varied greatly between individuals but the location of the two types of photoreceptors was not related to the genotypes of the overlying pigment epithelial cells. Frequent occurrence of abnormally large phagosomes, resembling the rds/+ phenotype, was noted regularly in both rds/+ and +/+ types of pigment epithelial cells located above rds/+ types of receptors, but not in the cells of either genotype located above normal receptors. In the eyes examined at 12-18 months, localized and partial depletion of the perikaryal population in the outer nuclear layer was observed, and the location of such areas was also unrelated to the genotypes of the pigment epithelial cells. These findings confirm that the rds gene acts within the neural retina and possibly within the receptor cells and further show that the genetic interaction between the rds gene and its normal allele in the retina of the heterozygous mice takes place within the receptor cells.