Undifferentiated glandular stomach tissue fragments from 16.5‐day fetal rats were transplanted under the kidney capsule of syngeneic adult rats, and the proliferation, differentiation and morphogenesis of the transplanted tissues were investigated. Gastric epithelial cells began to invaginate 3–4 days after the transplantation and immature glands were formed after 1 week. During the period, there was a gradual increase in the expression of pepsinogen and cathepsin E, markers of cytodifferentiation of the stomach epithelia, both at protein and mRNA levels. Cathepsin E was weakly expressed in undifferentiated gastric epithelial cells at 16.5 days of gestation, and a higher level of the expression was observed in differentiated epithelia of the transplants. In contrast, the pepsinogen‐producing cells first appeared around days 3–4 after transplantation and gradually increased in number to about 30% of the epithelial cells and became localized at the bottom of the gland. During the period of the experiment up to 1 month, the pepsinogen‐producing cells were all positive for class III mucin and cathepsin E, indicating the immature character of these cells. In addition, no parietal cells were observed. When the tissue fragments were transplanted into adrenalectomized animals, the epithelial differentiation and morphogenesis was suppressed, but its proliferation was enhanced. The observed changes were reversed by hydrocortisone replacement. These results suggest that the development of the 16.5‐day fetal stomach is regulated intrinsically to a certain extent by the genetic program of the cells involved and various gastric functions develop in the absence of luminal stimulation, stage‐specific systemic hormonal change, neuronal regulation or other systemic influences, and that glucocorticoids modulate the developmental program of the fetal stomach tissues.