Two new bone cell lines were established by immortalizing cells derived from embryonic rat calvariae with a recombinant retrovirus containing the cDNA for SV-40 large T antigen and the neomycin resistance gene. One cell line, RCT-1, isolated from early digest cells, a population which typically does not express osteoblastic features, displayed osteoblastic characteristics only after 3 days of treatment with 1 microM retinoic acid: alkaline phosphatase activity increased from 0.003 to 0.25 mumol/min.mg protein, the steady state level of type I procollagen mRNA increased 4-fold, and the cells acquired a PTH-stimulatable adenylate cyclase (EC50, 10 nM). mRNA for osteopontin, an abundant bone matrix protein, was induced in RCT-1 cells by 1,25-dihydroxyvitamin D3 (10 nM). The second cell line, RCT-3, isolated from late digest cells, a population previously shown to be enriched with differentiated osteoblasts, expressed constitutively the properties described above. In addition, RCT-3 cells responded to interleukin-1 by increased prostaglandin production (EC50, 20 pM) and to prostaglandin E2 by enhanced cAMP accumulation, features exhibited by calvarial cells in organ culture. Thus, the SV-40 immortalized cell lines we describe retained many of the characteristics of osteoblasts in primary culture, including hormonal regulation of phenotype-related genes. In RCT-1 cells the coordinate induction of several properties by retinoic acid offers a new model for the study of differentiation-related gene expression in bone cells.