1. Passive hyperpolarizing potentials (PHPs) have been recorded intracellularly from goldfish medullary neurons in the vicinity of the Mauthner cell (M-cell). They are evoked when this cell is activated antidromically by stimulation of the spinal cord, and orthodromically via the ipsilateral eighth nerve; when appropriately timed they block or delay spikes induced both directly and transsynaptically. 2. Since the PHPs and the M-cell spike have the same latency, time course, and all-or-none character, they cannot be generated by chemically mediated synaptic transmission. This conclusion is further supported by the evidence that PHP amplitude and time course are independent of membrane potential. 3. The analysis of the mechanism underlying PHP generation has been based on the hypothesis that they are brought about by the extracellular currents flowing to the axon cap during an M-cell action potential. Specifically, it was postulated that some of this current is channeled back to the axon cap region intracellularly through processes of PHP-exhibiting neurons, and that these cells are passively hyperpolarized by the associated inward transmembrane current flow. This model would require that PHP-exhibiting neurons send processes into the axon cap. This hypothesis is confirmed by the following: a) When the PHP is timed to occur during the conductance increase associated with a spike after hyperpolarization, it is reduced, as would be expected for a passive current flow across a membrane resistance. b) PHPs are not found in all medullary neurons in the vicinity of the M-cell, but rather in a specific neuronal population. c) PHP-exhibiting neurons have been identified following Procion yellow injections; as predicted, they issue one process, presumably the axon, which projects toward the M-cell axon cap area. d) The PHP can be stimulated by passing a cathodal current from a microelectrode located in the axon cap; it is not mimicked when the cathodal electrode is moved outside this region. The currents necessary to mimic a PHP are comparable to the estimated current flowing back to the axon cap during an M-cell action potential. 4. The input resistance of PHP-exhibiting neurons is in the range of 4 M alpha, and their estimated specific membrane resistance is in the range of 900-2,000 alpha-cm-2, which is not an unusually low value for neuronal membranes. By contrast, the intracellular channeling of current during a PHP can rather be attributed to a high extracellular tissue resistance within the axon cap, which was found to be at least 2.5 times that of the surrounding medullary tissue..