Clues as to the possible nature of the processes of learning and form discrimination are provided by certain similarities between the nervous system of cephalopods and mammals. These are the presence of (1) large numbers of small neurons, (2) self-re-exciting chains of neurons, (3) arrangements for interaction of the effects proceeding from each point of a stimulated sensory surface. The optic and tactile receiving centres of Octopus both contain elaborate interlaced arrangements of fibres that would allow for diffusion of effects of a local stimulus and interaction of effects from different loci. There is also provision for interaction between tactile and optic information after it has been synthesized in this way. The uppermost lobe of the brain (lobus verticalis) receives the final product of this interaction and appears to have the function of conserving the information. After its removal an octopus is able to retain a learned inhibition for only a few minutes, as against many hours in the normal animal. The course of these learning processes in Octopus strongly suggests that self-regenerating circuit systems are involved, but these can hardly be the only basis for the stable learning of higher animals. The study of the factors controlling the growth of regenerating nerve fibres shows that the nature of peripheral contacts made determines the size of the fibres. Evidence is also given that the size reached by nerve cells and their dendrites depends upon the amount of afferent influence that falls upon them. Every part of the nervous system is thus doubly dependent on influences it receives and on the cells that it can influence. The continual renewal of the finer branches of the fibres may well be controlled by these influences. Slight changes as a result of the combinations set up during functioning would be sufficient to alter the probable course of excitation within the nervous networks and thus to provide a stable basis for learned reactions.