We recently have shown that selective growth of transplanted normal hepatocytes can be achieved in a setting of cell cycle block of endogenous parenchymal cells. Thus, massive proliferation of donor-derived normal hepatocytes was observed in the liver of rats previously given retrorsine (RS), a naturally occurring alkaloid that blocks proliferation of resident liver cells. In the present study, the fate of nodular hepatocytes transplanted into RS-treated or normal syngeneic recipients was followed. The dipeptidyl peptidase type IV-deficient (DPPIV(-)) rat model for hepatocyte transplantation was used to distinguish donor-derived cells from recipient cells. Hepatocyte nodules were chemically induced in Fischer 344, DPPIV(+) rats; livers were then perfused and larger (>5 mm) nodules were separated from surrounding tissue. Cells isolated from either tissue were then injected into normal or RS-treated DPPIV(-) recipients. One month after transplantation, grossly visible nodules (2--3 mm) were seen in RS-treated recipients transplanted with nodular cells. They grew rapidly, occupying 80--90% of the host liver at 2 months, and progressed to hepatocellular carcinoma within 4 months. By contrast, no liver nodules developed within 6 months when nodular hepatocytes were injected into the liver of recipients not exposed to RS, although small clusters of donor-derived cells were present in these animals. Taken together, these results directly point to a fundamental role played by the host environment in modulating the growth and the progression rate of altered cells during carcinogenesis. In particular, they indicate that conditions associated with growth constraint of the host tissue can drive tumor progression in vivo.