The biological activity of 26-kD membrane-bound tumor necrosis factor (TNF)-a in embryonal development was examined in an in vitro system using embryonic stem (ES) cells. ES cells were seeded on NIH3T3 feeder cells transformed with mouse precursor TNF-a gene to express membrane-bound TNF-a on their cell surface. The proliferation of the ES cells was reduced and differentiation was accelerated. The same effects were also observed when 17-kD free TNF-a was added to the culture medium of the ES cells. Since free TNF-a is not present during embryogenesis, these results suggest that membrane-bound TNF-a may play an important role in embryonal development through cell-cell contact.