In the compound lateral eye of Limulus each ommatidium functions as a single receptor unit in the discharge of impulses in the optic nerve. Impulses originate in the eccentric cell of each ommatidium and are conducted in its axon, which runs without interruption through an extensive plexus of nerve fibers to become a fiber of the optic nerve. The plexus makes interconnections among the ommatidia, but its exact organization is not understood. The ability of an ommatidium to discharge impulses in the axon of its eccentric cell is reduced by illumination of other ommatidia in its neighborhood: the threshold to light is raised, the number of impulses discharged in response to a suprathreshold flash of light is diminished, and the frequency with which impulses are discharged during steady illumination is decreased. Also, the activity that can be elicited under certain conditions when an ommatidium is in darkness can be inhibited similarly. There is no evidence for the spread of excitatory influences in the eye of Limulus. The inhibitory influence exerted upon an ommatidium that is discharging impulses at a steady rate begins, shortly after the onset of the illumination on neighboring ommatidia, with a sudden deep minimum in the frequency of discharge. After partial recovery, the frequency is maintained at a depressed level until the illumination on the neighboring receptors is turned off, following which there is prompt, though not instantaneous recovery to the original frequency. The inhibition is exerted directly upon the sensitive structure within the ommatidium: it has been observed when the impulses were recorded by a microelectrode thrust into an ommatidium, as well as when they were recorded more proximally in single fibers dissected from the optic nerve. Receptor units of the eye often inhibit one another mutually. This has been observed by recording the activity of two optic nerve fibers simultaneously. The mediation of the inhibitory influence appears to depend upon the integrity of nervous interconnections in the plexus: cutting the lateral connections to an ommatidium abolishes the inhibition exerted upon it. The nature of the influence that is mediated by the plexus and the mechanism whereby it exerts its inhibitory action on the receptor units are not known. The depression of the frequency of the discharge of nerve impulses from an ommatidium increases approximately linearly with the logarithm of the intensity of illumination on receptors in its vicinity. Inhibition of the discharge from an ommatidium is greater the larger the area of the eye illuminated in its vicinity. However, equal increments of area become less effective as the total area is increased. The response of an ommatidium is most effectively inhibited by the illumination of ommatidia that are close to it; the effectiveness diminishes with increasing distance, but may extend for several millimeters. Illumination of a fixed region of the eye at constant intensity produces a depression of the frequency of discharge of impulses from a nearby ommatidium that is approximately constant, irrespective of the level of excitation of the ommatidium. The inhibitory interaction in the eye of Limulus is an integrative process that is important in determining the patterns of nervous activity in the visual system. It is analogous to the inhibitory component of the interaction that takes place in the vertebrate retina. Inhibitory interaction results in the exaggeration of differences in sensory activity from different regions of the eye illuminated at different intensities, thus enhancing visual contrast.