A cloned line of canine kidney cells (MDCK) transformed with Harvey murine sarcoma virus, in contrast to the parental, untransformed line, expressed glucagon sensitivity only under controlled culture conditions. The glucagon sensitivity of transformed MDCK cells appeared after 10 days of culture if plated at less than 100,000 cells/dish or after 3 days if cells were plated at greater than 300,000 cells/dish. As there was no effect of conditioned medium from glucagon-sensitive cells on insensitive cells, media components seemed not to be involved in this phenomenon. Glucagon sensitivity appeared more readily in defined as opposed to serum-containing medium. In fact, as little as 2% fetal bovine serum inhibited the expression of glucagon sensitivity when included in defined medium over the course of the experiment. Furthermore, when transformed MDCK cells were exposed to serum for only the first 24 hr of culture, glucagon sensitivity on day 11 was identical to that of cells exposed to serum throughout the entire experiment. In contrast, exposure to serum later in culture (days 4-8) had no inhibitory effect on the expression of glucagon sensitivity on day 11. The data suggest that differentiation, or glucagon sensitivity, occurs when transformed, glucagon-insensitive cells achieve a critical high density and that differentiation is sensitive to inhibition by serum only during the first 24 hr of culture.