As an alternative to bladder mucosa, free grafts of tubularized peritoneum were used as urethral substitutes in a rabbit model of hypospadias. In group 1, six mature rabbits underwent partial penile urethrectomy followed by interposition of a 2-cm-long peritoneal-lined tube graft. These animals had urethrograms performed at 3 months and were killed at 6 (n = 4) or 12 (n = 2) months. In group 2, six rabbits underwent total penile urethrectomy with placement of 3-cm-long grafts. These animals were killed 1 to 4 weeks after surgery. Clinical assessment and gross examination of the 12 rabbits showed no urinary retention, two small fistulas at the proximal anastomosis, and no strictures or diverticular. At 6 and 12 months (group 1) the urethra had healed completely and the graft edges were not visible. In group 2, 1 to 4 weeks after surgery the graft was intact and the interface between the graft and native urethra was visible. Histological studies of the grafts were compared with control peritoneum. At 1 week, a high-density single-cell layer was present. Beginning at 2 weeks, a multilayered epithelium was present, which became more organized in the older grafts. Neovascularity became visible in the subepithelial layer at 2 weeks. Acute inflammatory cells were present early and were replaced by a palisading layer of lymphocytes and plasma cells in the older grafts. Minimal fibrosis was observed. Tubularized peritoneal free grafts are a promising new urethral substitute. Graft placement is technically simple. Replacement of the peritoneum by a multilayered epithelium resembling transitional epithelium occurs early after graft placement. As much as 1 year later, minimal scarring is present.