Transformed mouse epidermal keratinocytes of the cell line PDV, when cultured under the presence of transforming growth factor-beta 1 (TGF-beta 1), escaped the block of growth exerted by this factor in normal keratinocytes and underwent marked changes in cell differentiation. TGF-beta 1 induced disruption of epithelial interactions, dispersion of cells, increased local movement, and conversion to a fibroblast-like morphology. These changes were reversible and correlated with down-regulation of epithelial protein markers such as E-cadherin and cytokeratins and upregulation of vimentin. TGF-beta 1-treated cells with a fibroblast-like phenotype induced spindle cell carcinomas upon transplantation in athymic nude mice, whereas untreated PDV cells or fusiform cells reverted to the epithelial phenotype and produced well-differentiated squamous cell carcinomas. Nontumorigenic immortalized epidermal keratinocytes, when grown under the presence of TGF-beta 1, did not transdifferentiate to a mesenchymal phenotype, their proliferation was blocked, and cells finally died. These results suggest a role of TGF-beta 1 in the progression of squamous carcinoma cells to spindle carcinomas in mouse skin carcinogenesis.