To identify new molecular markers for differentiation of normal and neoplastic colon epithelium, we have studied changes in gene expression during the in vitro differentiation of the HT29-D4 colon carcinoma cell line. Using a modified differential display procedure, we cloned a novel cDNA, designated differentiation-related gene 1 (Drg1). Drg1 mRNA has a length of approximately 3 kb and is induced approximately 20-fold during in vitro differentiation of the colon carcinoma cell lines HT29-D4 and Caco-2. The absence of Drg1 induction in growth-inhibited A431 epidermoid carcinoma cells indicates that Drg1 up-regulation in colon carcinoma cells is not a result of decreased proliferation. The Drg1 cDNA contains an open-reading frame of 1182 bp that encodes a protein with a predicted molecular weight of 43 kd. Drg1 mRNA is expressed most prominently in placental membranes and prostate, kidney, small intestine, and ovary tissues. Compared to normal colon mucosa, Drg1 mRNA expression is decreased in colon adenomas and adenocarcinomas. An antiserum raised against recombinant Drg1 protein detected a band of the expected size in Western blots. Immunohistochemistry showed that in normal colon Drg1 protein is expressed in the cytoplasm and basolateral membranes of surface epithelial cells that border the gut lumen, indicating that Drg1 protein is expressed late during differentiation, just before apoptosis and shedding of cells into the colon lumen.