Neurons in Rexed's layers I and II were physiologically characterized with respect to innocuous and noxious natural stimuli and percutaneous electrical stimuli applied to their cutaneous receptive fields. The neurons were then intracellularly stained with horseradish peroxidase which revealed their morphology for light and electron microscopic study. Layer I neurons either responded exclusively to noxious stimuli (NS neurons) or they responded to both noxious stimuli and innocuous mechanical stimuli (wide-dynamic-range; WDR neurons). Some layer I neurons were seen to have axon collaterals that generated extensive arborizations that overlapped their dendritic territories. Neurons with perikarya in the superficial one-third of layer II (layer IIa) were physiologically identified as either WDR or NS neurons. Layer IIa neurons were morphologically identified as stalked cells and islet cells. All of the islet cells in the deep two-thirds of layer II (layer IIb) responded exclusively to innocuous mechanical stimuli. These results show that stalked cells and islet cells are separate and distinct components of the neural circuitry in the substantia gelatinosa.