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AIMS This study investigated the relationship between the differentiation of tumour cells into crypts, which is determined by cell differentiation into Paneth and neuroendocrine cells, and tumour infiltration in gastric dysplasia. METHODS AND RESULTS The lesions were endoscopically biopsied low-grade dysplasia (LGD), endoscopically resected high-grade dysplasia (HGD), or cancer with submucosal invasion. LGD (n = 32) displayed crypt differentiation across the entire width of the tumour in all cases. Crypt differentiation was identified as a characteristic of tumours with low biological malignancy. HGD (n = 40) included tumours with a mixture of areas with and without crypt differentiation (n = 25) and tumours with crypt differentiation throughout the entire width (n = 15). Of the cancers with submucosal invasion (n = 30), the morphological progression of HGD area with crypt differentiation, HGD area without crypt differentiation and invasive cancer without crypt differentiation was confirmed for 23 samples. In two lesions, invasive cancer without crypt differentiation developed from HGD without crypt differentiation throughout the tumour width. In five samples, well-differentiated tubular adenocarcinoma with crypt differentiation developed from HGD with crypt differentiation and invaded with lamina propria-like stroma. CONCLUSIONS Loss of crypt differentiation could be an objective indicator of infiltration in the progression of HGD to invasive cancer. The invasive potential of dysplasia depends on the presence or absence of crypt differentiation.