The lung, in particular the bronchial epithelium, is a major site for tumor formation in humans. Environmental factors, such as cigarette smoke, in conjunction with genetic factors are important determinants in this disease. Malignant cells exhibit alterations in their control of proliferation and differentiation. It is believed that the acquisition of defects in the regulation of these processes is important in the process of carcinogenesis. A clear insight into the basic mechanisms of the regulation of proliferation and differentiation is required to understand the molecular mechanisms involved in tumor development and in other pathological conditions. Studies using in vitro cell culture systems of tracheobronchial epithelial cells provide useful models in which to study the regulation of differentiation and proliferation. The clonogenic cells derived from the treacheobronchial epithelium are pluripotent: They have self-renewal capacity and can differentiate along either a normal, mucosecretory, or a squamous cell pathway. Squamous differentiation in tracheobronchial epithelial cells has many morphological, biochemical, and regulatory properties in common with epidermal differentiation. This pathway of differentiation is a multistep process consisting of at least three stages. In the initial stage, cells become committed to terminal cell division. This is followed by the expression of the squamous differentiated phenotype and finally cornification. Various factors, such as several growth factors, retinoids, calcium ions, and phorbol esters, regulate the program of differentiation at different stages. Studies have indicated that the controls of proliferation and differentiation are interrelated. Cell lines established from tracheobronchial epithelial cells expressing SV40 large T-antigen, as well as carcinoma cell lines, exhibit altered responses to growth and differentiation regulatory factors Alterations in the commitment to terminal cell division must be a crucial step in the transition of a normal to a malignant cell.