Skin biopsies from the cutaneous lesions of seven patients with indeterminate, BT, BL, and LL leprosy of less than 1 year's duration were examined by light and electron microscopy. Inflammatory cells, which marked the location of Mycobacterium leprae in bacilliferous cases (BL and LL) were most frequently and consistently found in relation to dermal blood vessels, neurovascular bundles, nerves, arrector pili muscles, and skin adnexa. The number of bacilli and inflammatory cells in the epineurium was in great excess of those in the perineurium and endoneurium. Perineurial infiltration by lymphocytes and bacillated macrophages was seen to occur through gaps between the constituent cells of a loosened and sometimes proliferated perineurium. Bacillation of Schwann cells and associated inflammation in the endoneurium was minimal. M. leprae were identified in endothelial cells, arrector pili muscles, macrophages and Schwann cells. At this stage, inflammatory destruction of nerve fibers was not encountered. It is concluded that M. leprae which are extruded from the circulation into the epineurium (or perineurium) may be carried in inflammatory cells across the perineurium which is loosened and rendered permeable to inflammatory cells as a consequence of chronic inflammation in the adjacent epineurium. This is suggested as a very probable route for M. leprae to enter nerves.