The majority of human lung cancers arise from bronchial epithelial cells. The normal pseudostratified bronchial epithelium is composed of basal, mucous, and ciliated cells. This multi-differentiated epithelium usually responds to xenobiotics and physical injury by undergoing basal cell hyperplasia, mucous cell hyperplasia, and squamous metaplasia. One step of the multistage process of carcinogenesis is thought to involve aberrations in control of the squamous metaplastic processes. Decreased responsiveness to regulators of terminal squamous differentiation may confer a selective clonal expansion advantage to an initiated cell. We studied the effects of endogenous [e.g., transforming growth factor beta 1 (TGF-beta 1) and serum] and exogenous [e.g., 12-O-tetradecanoyl-13-phorbol-acetate (TPA), tobacco smoke condensate, and aldehydes] modifiers of normal human bronchial epithelial (NHBE) cell in a serum-free culture system. NHBE cells are growth inhibited by all of these compounds and induced to undergo squamous differentiation by TGF-beta 1 or TPA. In contrast, lung carcinoma cell lines are relatively resistant to inducers of terminal squamous differentiation which may provide them with a selective growth advantage. Chemical agents and activated protooncogenes (ras,raf,myc) altered the response to endogenous and exogenous inducers of squamous differentiation and caused extended cellular lifespan, aneuploidy, and/or tumorigenicity. The data suggest a close relationship between dysregulation of terminal differentiation pathways and neoplastic transformation of human bronchial epithelial cells.