Primary mouse epidermal cells underwent spontaneous malignant transformation in culture. Twelve malignant epidermal cell lines were established which produced squamous cell carcinomas in syngeneic hosts. These lines were used to define criteria for recognizing transformed epidermal cells in vitro. Growth in suspension in agar, agarose, or Methocel was minimal for 11 of the lines. All lines tested retained specific epidermal antigens (pemphigus, pemphigoid, keratin) by indirect immunofluorescence, but keratin content was reduced when quantified by radioimmunoassay. Basal activity of ornithine decarboxylase and activity induced by the tumor promoter 12-O-tetradecanoylphorbol-13-acetate were variable among lines. All malignant lines as well as normal epidermal cells grew well at reduced extracellular calcium concentrations. When the extracellular calcium was elevated, normal cells ceased proliferation, terminally differentiated, and sloughed from the culture dish, while malignant cells continued to proliferate although they expressed differentiative functions. These results indicate that malignant transformation in epidermis is associated with a fundamental alteration in the program of terminal differentiation which allows some cells to escape the proliferative block and cell death which accompanies differentiation in normal keratinocytes. This alteration should be useful to select for transformants during the process of carcinogenesis in vitro.