Type beta transforming growth factor (TGF-beta) was shown to be the serum factor responsible for inducing normal human bronchial epithelial (NHBE) cells to undergo squamous differentiation. NHBE cells were shown to have high-affinity receptors for TGF-beta. TGF-beta induced the following markers of terminal squamous differentiation in NHBE cells: (i) increase in Ca ionophore-induced formation of crosslinked envelopes; (ii) increase in extracellular activity of plasminogen activator; (iii) irreversible inhibition of DNA synthesis; (iv) decrease in clonal growth rate; and (v) increase in cell surface area. The IgG fraction of anti-TGF-beta antiserum prevented both the inhibition of DNA synthesis and the induction of differentiation by either TGF-beta or whole blood-derived serum. Therefore, TGF-beta is the primary differentiation-inducing factor in serum for NHBE cells. In contrast, TGF-beta did not inhibit DNA synthesis of human lung carcinoma cells even though the cells possess comparable numbers of TGF-beta receptors with similar affinities for the factor. Epinephrine antagonized the TGF-beta-induced inhibition of DNA synthesis and squamous differentiation of NHBE cells. Although epinephrine increased the cyclic AMP levels in NHBE cells, TGF-beta did not alter the intracellular level in NHBE cells in either the presence or absence of epinephrine. Therefore, epinephrine and TGF-beta appear to affect different intracellular pathways that control growth and differentiation processes of NHBE cells.