An in vitro system was established in which single-cell suspensions of lymphocytes and synovial cells from the joints of patients with rheumatoid arthritis were cultured and produced an outgrowth of an organized inflammatory tissue with an extracellular matrix and capsule. The tissue outgrowth, which had histologic features of pannus, required the addition of mycobacterial antigen and interleukin-2 to the tissue culture medium and was dependent upon the presence of T lymphocytes and their interaction with synovial fibroblasts.