Animal experiments were carried out on 28 dogs which underwent osteotomy of the femur without postoperative fixation. For systematic light- and transmission electron microscopy tissue from this area of 7 dogs was prepared. Result was a functional morphology of connective tissue. Instability of bone fragments is regarded as the most important factor in pathogenesis of pseudarthrosis. Pathologic mobility in the osteotomy area caused specific altered differentiation of local connective tissue cells, leading to a joint capsule-like formation of connective tissue. "Lining cells" to the pseudarthrotic cavity are fibroblasts and histiocyts, comparable to the "lining cells" of normal stratum synoviale. These cells are surrounded by some collagenous fibres and large amounts of amorphous ground substances. They derive means of numerous transitional forms. The capsule-like tissue formation aside the pseudarthrotic cavity is comparable to stratum synoviale of normal joints. In some of these capsule-like areas there are degenerative alterations similar to those of joint capsules in osteoarthritis.