To investigate the biological functions of transmembrane proteoglycans we have produced clonal cell lines of rat Schwann cells that express the hybrid proteoglycan syndecan-1. This was done by transfection of newborn rat Schwann cells with a plasmid vector bearing the rat syndecan-1 cDNA sequence under transcriptional control of the constitutively active cytomegalovirus promoter, and a neomycin resistance gene. Stably expressing cells were selected by growth in G418. Expression of syndecan-1 was verified by Northern and immunoblot analysis and immunoprecipitation of 35SO4-labeled proteoglycans. The syndecan-1 expressing cells exhibited significantly enhanced spreading on several different substrata, including fibronectin and laminin, and an altered morphology. The enhanced spreading appeared to result from the presence of syndecan-1, based on the observation that anti-syndecan-1 antibodies inhibited the enhanced substratum spreading. There was also a reorganization of cytoskeletal structures and formation of focal adhesions, visualized by anti-vinculin staining, which were absent from control Schwann cells. There was no apparent stable association of cell surface syndecan-1 with focal contact sites, as determined by dual staining with anti-syndecan-1 and anti-vinculin antibodies. Colocalization of patches of cell surface syndecan-1 with actin was observed, but only during cell spreading. These findings provide evidence for a role of transmembrane proteoglycans in cellular morphogenesis, and suggest that transient association of syndecans with microfilaments may be an important aspect of their biological function.