Intercalated epithelial cells exist in a spectrum of phenotypes; at one extreme, β cells secrete HCO₃ by an apical Cl/HCO₃ exchanger and a basolateral H⁺ ATPase. When an immortalized β cell line is seeded at high density it deposits in its extracellular matrix (ECM) a new protein, hensin, which can reverse the polarity of several proteins including the Cl/HCO₃ exchanger (an alternately spliced form of band 3) and the proton translocating ATPase. When seeded at low density and allowed to form monolayers these polarized epithelial cells maintain the original distribution of these two proteins. Although these cells synthesize and secrete hensin, it is not retained in the ECM, but rather, hensin is present in a large number of intracellular vesicles. The apical cytoplasm of low density cells is devoid of actin, villin, and cytokeratin19. Scanning electron microscopy shows that these cells have sparse microvilli, whereas high density cells have exuberant apical surface infolding and microvilli. The apical cytoplasm of high density cells contains high levels of actin, cytokeratin19, and villin. The cell shape of these two phenotypes is different with high density cells being tall with a small cross-sectional area, whereas low density cells are low and flat. This columnarization and the remodeling of the apical cytoplasm is hensin-dependent; it can be induced by seeding low density cells on filters conditioned by high density cells and prevented by an antibody to hensin. The changes in cell shape and apical cytoskeleton are reminiscent of the processes that occur in terminal differentiation of the intestine and other epithelia. Hensin is highly expressed in the intestine and prostate (two organs where there is a continuous process of differentiation). The expression of hensin in the less differentiated crypt cells of the intestine and the basal cells of the prostate is similar to that of low density cells; i.e., abundant intracellular vesicles but no localization in the ECM. On the other hand, as in high density cells hensin is located exclusively in the ECM of the terminally differentiated absorptive villus cells and the prostatic luminal cell. These studies suggest that hensin is a critical new molecule in the terminal differentiation of intercalated cell and perhaps other epithelial cells.