Mutations in the APC (adenomatous polyposis coli) gene appear to be responsible for not only familial adenomatous polyposis but also many sporadic cases of gastrointestinal cancers. Using homologous recombination in mouse embryonic stem cells, we constructed mice that contained a mutant gene encoding a product truncated at a 716 (Apc delta 716). Mendelian transmission of the gene caused most homozygous mice to die in utero before day 8 of gestation. The heterozygotes developed multiple polyps throughout the intestinal tract, mostly in the small intestine. The earliest polyps arose multifocally during the third week after birth, and new polyps continued to appear thereafter. Surprisingly, every nascent polyp consisted of a microadenoma covered with a layer of the normal villous epithelium. These microadenomas originated from single crypts by forming abnormal outpockets into the inner (lacteal) side of the neighboring villi. We carefully dissected such microadenomas from nascent polyps by peeling off the normal epithelium and determined their genotype by PCR: all microadenomas had already lost the wild-type Apc allele, whereas the mutant allele remained unchanged. These results indicate that loss of heterozygosity followed by formation of intravillous microadenomas is responsible for polyposis in Apc delta 716 intestinal mucosa. It is therefore unlikely that the truncated product interacts directly with the wild-type protein and causes the microadenomas by a dominant negative mechanism.