Polycythaemia in the neonate is a serious pathologic entity which occurs particularly in infants of diabetic mothers (IDM) and small-for-gestational age (SGA) infants. Both of these conditions are associated with fetal hyperinsulinaemia. Cultures of cord blood mononuclear cells from polycythaemic IDM showed increased growth of late erythroid progenitor colonies, compared to cord blood mononuclear cells from non-polycythaemic infants, reflecting a possible expansion of this progenitor population in the polycythaemic fetus. No changes were observed in early erythroid progenitor populations. Biosynthetic human insulin at physiological levels characteristic of IDM stimulated growth in culture of late erythroid progenitors in cord blood from premature, term and IDM infants. Three out of five polycythaemic infants had elevated cord blood plasma levels of insulin C-peptide at birth, whereas no infant with a haematocrit of less than 65% had high insulin C-peptide measurements. These data suggest that the polycythaemia noted in infants of diabetic mothers may be secondary, in large part, to a stimulatory effect on erythroid progenitor growth by the hyperinsulinaemic environment in which they develop in utero.