Lung cancer is a leading cause of tumor-related deaths in humans but its origin and development are poorly understood. To study the biology of these tumors, appropriate animal and cell culture models will be of eminent importance. Uteroglobin is a marker protein for the nonciliated epithelial Clara cells lining the respiratory and terminal bronchioli of the lung. We have used the promoter and 5'-flanking sequences of the rabbit uteroglobin gene to target expression of the SV40 T antigen to the lung of transgenic mice. All transgenic founders as well as the descendants from an established line, UT7.1, developed multifocal bronchioloalveolar adenocarcinomas originating from Clara cells. At least three different stages in tumor development with progressive loss of the differentiated phenotype can be distinguished by immunohistochemical data and in situ hybridization. Only in the initial stage did bronchiolar cells express both uteroglobin and SV40 T antigen, whereas at later stages, only SV40 T antigen was detected, and the most advanced tumors were negative for both proteins. Starting from the lungs of UT7.1 mice, a bronchiolar cell line was established that maintains the features of differentiated Clara cells. This system provides a useful model for further studying the development and progression of lung adenocarcinomas in vivo and in vitro.