The injection into athymic nude mice of well-differentiated cells of the H4IIEC3 rat hepatoma line leads to tumor take and growth. Animals given injections of cells of a "dedifferentiated" variant subclone, however, do not develop tumors, whereas revertant clones are malignant. Nevertheless, tumors are obtained by increasing the number of injected dedifferentiated cells, and the cells from these tumors do express liver-specific messenger RNAs. Finally, the differentiated state of these tumor cells is stable in vitro. This correlation between the differentiated state of the cells and tumorigenicity is also observed in somatic hybrids between the variant cells and the differentiated ancestors. These hybrids express the hepatic functions and give rise to tumors. The only in vitro character of transformation which distinguishes the two types of cells is anchorage independence of growth. Since two other independent variants develop tumors, it is established that the nonmalignant state is not simply due to the lack of expression of liver-specific traits. There is strong evidence that different mechanisms are responsible for the dedifferentiated state of the two classes of variants, and this supports the hypothesis that the correlation between the dedifferentiated state of the nonmalignant variant and its nontumorigenic phenotype relies on the level of regulation specifically affected in this clone.