The fat body of fifth instar Calpodes ethlius sequesters protein from the blood into storage granules at pupation and into multivesicular bodies during the intermoult. The factors controlling the switch from the formation of multivesicular bodies to the formation of storage granules have been investigated using plant peroxidase as a tracer protein. Larvae ligated behind the thorax before the critical period for the initiation of moulting by the prothoracic glands do not make storage granules, but larvae decapitated after the prothoracic glands have been activated, pupate and the fat body contains normal protein granules. Although larvae with thoracic ligations do not make protein storage granules, peroxidase continues to be taken up from the blood into multivesicular bodies. The failure of these larvae to make storage granules is not the result of a low nutritional state or the lack of available blood protein. Measurements on normal and ligated larvae show that a high blood protein concentration is not a sufficient stimulus for granule formation. Protein storage granules are formed only when the hormonal milieu is adequate to allow moulting. The injection of ecdysone into isolated abdomens results in pupation and also causes the fat body to undergo the phases of autophagy and heterophagy which normally occur. Observations on the uptake of peroxidase in larvae ligated at various times in the intermoult, show that the ability to concentrate blood protein between cells and pinocytosis to form multivesicular bodies are intrinsic properties of the fat body; only the switch to the formation of storage granules needs the hormonal milieu present at pupation. Storage granule formation is the heterophagic part of the alternating sequence of autophagy and heterophagy which results in the metamorphosis of the fat body. © 1969.