Twenty-four hours after parasitization by the braconid parasitoid Cotesia congregata, Manduca sexta larvae showed a strong suppression of their encapsulation response to positively charged polysaccharide (Sephadex A-25) beads. In contrast, by 8 days post-parasitization, the frequency of encapsulation of injected beads was no longer distinguishable from that observed in nonparasitized controls. This pattern of induction of encapsulation suppression followed by recovery was temporally correlated with morphological abnormalities occurring in host hemocytes. The immunosuppressive and morphological hemocyte changes were mimicked by injection of unparasitized M. sexta larvae with filter-purified C. congregata polydnavirus, indicative of viral mediation of these changes. In transplantation experiments, unparasitized fourth-instar M. sexta larvae received first instar C. congregata larvae which had been excised from their original hosts 8 days post-parasitization. Half of these M. sexta larvae encapsulated the transplanted parasitoids, but died in the wandering stage. The remaining half of the larvae did not encapsulate the parasitoids, and exhibited growth inhibition and a failure to molt to the fifth instar. Transplanted parasitoids emerged and pupated from 43% of these larvae, all of which were developmentally arrested in the fourth instar. Thus, hosts exhibit a recovery of their hemocytic encapsulation capabilities over the course of parasitism, and the later stage parasitoids appear capable of avoiding the host immune response and completing development in the absence of the preconditioning effects of the polydnavirus, as well as other factors normally present in naturally parasitized hosts, such as ovarian proteins, venom, and teratocytes.