Type beta transforming growth factor-growth inhibitor (TGF beta/GI) causes normal human prokeratinocytes to arrest growth predominantly in the G1 phase of the cell cycle within 48 h after log phase cultures are exposed to the factor in serum-free medium. The growth arrest induced by TGF beta/GI is reversible because the cells from treated cultures can be replated into fresh medium and grown into large colonies. Normal prokeratinocytes are demonstrated to secrete TGF beta/GI-like molecules into the culture medium and to have specific cell surface receptors for this molecule. In contrast, a human squamous cell carcinoma, SCC-25, does not arrest growth when exposed to TGF beta/GI. These cells, unlike the normal prokeratinocytes, do not exhibit detectable cell surface receptors for the factor.