The cytopathic effect of the polyarthritis strain of Chlamydia psittaci was studied in cultured bovine fetal spleen cells and found to be mediated by the release of lysosomal enzymes into the host cytoplasm during the late stages of chlamydial development. Ultrastructural cytochemical analysis and cell fractionation studies of infected cells revealed a close relationship between the stage of chlamydial development, fine structural features of the host, and localization of lysosomal enzyme activities. After adsorption, chlamydiae entered the host cells by endocytosis. The endocytic vacuoles containing individual chlamydiae and later the inclusion vacuoles containing the different chlamydial developmental forms were always free from lysosomal enzyme activity. Even after extensive multiplication of chlamydiae, lysosomal enzymes remained localized within lysosomes or their precursors in the host cell. Coincident with the process of chlamydial maturation, lysosomal enzymes were released into the host cytoplasm and were always associated with disintegration of host cell constituents and lysis. The chlamydiae appeared to be protected from this lysosomal enzyme activity by the inclusion membrane. After release from the inclusion, elementary bodies maintained their fine structural features, whereas all other chlamydial developmental forms lost their ultrasturctural integrity.