The causation, structural origin, and mechanism of formation of spongiform lesions in transmissible encephalopathies are unknown. We have used immunogold electron microscopy to locate ubiquitin conjugates, hsp 70, and beta-glucuronidase (markers of the lysosomal compartment) and prion protein (PrP) in both control and scrapie-infected mouse brain. In scrapie-infected brain, lysosomes and lysosome-related structures (multivesicular and tubulovesicular dense bodies) are present in abnormally high numbers in neuronal cell processes. These structures contain PrP, together with the lysosomal markers ubiquitin conjugates, hsp 70, and beta-glucuronidase, which could also be identified spilling from tubulovesicular dense bodies into areas of early rarefaction in neuronal processes; we suggest that these areas of rarefaction are the precursor lesions of spongiform change. We advance the hypothesis that spongiform change is brought about by cytoskeletal disruption in neuronal processes caused by liberation of hydrolytic enzymes from lysosomes overloaded with the abnormal isoform of PrP (PrPsc). We suggest that the lysosomal system is probably acting as the bioreactor for processing of normal PrP to the abnormal isoform. The continuous production of increasing quantities of abnormal PrPsc in lysosome-related bodies will eventually cause disruption of the lysosomal membrane with destruction of the neuronal cytoskeleton and the initiation of vacuolation. Later, death of the cell will be associated with release of the PrPsc isoform into the extracellular environment. Repeated rounds of phagocytosis, lysosomal biogenesis of PrPsc, lysosomal membrane rupture, hydrolytic enzyme release, and neuronal lysis will lead to an exponential increase in cell damage and cell death.(ABSTRACT TRUNCATED AT 250 WORDS)