Well-differentiated epithelial cells, derived from primary cultures of normal rat thyroid glands (T-79 cells), as well as a cloned cell line also derived from normal rat thyroid glands (FRT-L cells) were infected with Kirsten murine sarcoma virus carrying outer coat of the helper Kirsten murine leukemia virus. Infected T-79 and FRT-L cells changed morphologically and began to proliferate rapidly, suggesting malignant transformation by the virus. Both cell lines can support the replication of both transformation-competent and transformation-incompetent viruses such as murine or rat leukemia viruses. Infected T-79 and FRT-L cells had a high colony-forming efficiency (68 and 64%, respectively) when grown in agar and formed tumors when transplanted s.c. into syngeneic rats. These tumors morphologically resemble undifferentiated adenocarcinomas, thus showing that Kirsten sarcoma virus carrying the outer coat of the helper Kirsten murine leukemia virus is able to transform differentiated epithelial cells. Transformed T-79 and FRT-L cells, in contrast to uninfected cells, neither secrete thyroglobulin concentrate iodide, two biochemical markers of differentiated thyroid function. Thus, expression of the differentiated phenotype is blocked as a consequence of cell transformation. The system described may be useful in studying epithelial cell carcinogenesis in terms of regulated expression of differentiated functions.