The purpose of this study was to examine whether changes in extracellular matrix (ECM) molecules are associated with the growth inhibition and differentiation defects of the prostate gland following neonatal exposure to estradiol. Using immunocytochemistry (ICC), laminin and collagen IV were localized to the basement membrane (BM) as well to the basal lamina of the periductal smooth muscle of the control developing prostates. In contrast, fibronectin and collagen III were localized throughout the stromal ECM. Exposure to neonatal estrogen altered the staining profile for specific ECM molecules. In the estrogenized rats, a thick layer of cells negative for laminin and collagen IV was observed adjacent to the BM. Electron microscopy and ICC for alpha-actin, fibronectin, and vimentin identified this multicellular layer of periductal cells as differentiated fibroblasts. Peripheral to these fibroblasts, actin-positive smooth muscle formed a second layer of periductal stromal cells. PCNA labeling showed that estrogen exposure increased the fibroblast proliferation. Because many periductal fibroblasts were positive for estrogen receptor alpha (ER alpha) in estrogenized rats, a direct effect of estradiol on their proliferation is suggested. Gelatinolytic gels revealed that estrogen exposure did not alter the activity of matrix metalloproteinases associated with tissue remodeling during prostate morphogenesis. However, the periductal fibroblast layer in estrogenized prostates was devoid of urokinase- and tissue-plasminogen activator, which may potentially alter the localized proteolysis involved in matrix remodeling. It is proposed that proliferation of a multicellular layer of periductal fibroblasts in estrogenized prostates results in a physical barrier that constrains branching morphogenesis and blocks paracrine communications between smooth muscle and epithelial cells which normally regulate differentiation.