Patterning processes during embryonic development of Hydractinia echinata were analysed for alterations in morphology and physiology as well as for changes at the cellular level by means of treatment with proportioning altering factor (PAF). PAF is an endogenous factor known to change body proportions and to stimulate nerve cell differentiation in hydroids (Plickert 1987, 1989). Applied during early embryogenesis, this factor interferes with the proper establishment of polarity in the embryo. Instead of normal shaped planulae with one single anterior and one single posterior end, larvae with multiple termini develop. Preferentially, supernumerary posterior ends, which give rise to polyp head structures during metamorphosis, form while anterior ends are reduced. The formation of such polycaudal larvae coincide with an increase in the number of interstitial cells and their derivatives at the expense of epithelial cells. Treatment of further advanced embryonic stages causes an increase in length, presumably due to the general stimulation of cell proliferation observed in such embryos. Also, the spatial arrangement of cells (i.e. cells in proliferation and RFamide (Arg-Phe-amide immunopositive nerve cells) is altered by PAF. Larvae that develop from treated embryos display altered physiological properties and are remarkably different from normal planulae with respect to their morphogenetic potential: (1) Larvae lose their capacity to regenerate missing anterior parts; isolated posterior larva fragments form regenerates of a bicaudal phenotype. (2) In accordance with the frequently observed reduction of anterior structures, the capacity to respond to metamorphosis-inducing stimuli decreases. (3) The morphogenetic potential to form basal polyp parts is found to be reduced. In contrast, the potential to form head structures during metamorphosis increases, since primary polyps with supernumerary hypostomes and tentacles metamorphose from treated animals.