Muramyl dipeptide (MDP) and the butyl ester derivative, N- acetylmuramyl- l-alanyl- d-glutamine-alpha -n- butyl ester (MDP[Gln]OnBu), were shown to induce the in vitro proliferation of oil-induced guinea pig peritoneal exudate cells (PEC). Both agents induced 10–20 fold increases in tritiated thymidine incorporation in PEC cultures. The maximal effects occurred in 72 h cultures stimulated with either 0.1 μg MDP or 10 μg MDP[Gln]OnBu. The mitogenic effects of MDP appeared to be mediated by a macrophage product detected in the supernatants of MDP-stimulated cultures. Supernatants of MDP- or MDP[Gln]OnBu-stimulated PEC cultures were also inhibitory to normal fibroblast growth and cytotoxic to L929 tumor cells. These results indicated that these agents may stimulate macrophages by modulating secretory functions. In addition, either peptidoglycan was capable of activating bactericidal activity in in vitro macrophage cultures. Initial studies of possible mechanisms of action revealed an early increase in the level of cyclic GMP. The possible role of cyclic GMP in mediating the stimulation of macrophage secretory processes is discussed.