Human epidermal keratinocytes grow from single cells into stratified colonies. Cells in the upper layers of the colonies lose their ability to divide and begin terminal differentiation. In this process, there develops a cornified cell envelope that remains insoluble after heating in solutions of sodium dodecylsulfate and beta-mercaptoethanol. The insolubility of the cornified envelope depends upon proteins, since after treatment with proteolytic enzymes, the envelope becomes soluble in the detergent. Cells with cornified envelopes can be identified under the light microscope either in living colonies or following fixation and silver nitrate staining. Keratinocytes of the basal layer move in a characteristic way, but cornified cells do not move at all and form an immobile upper layer in the colonies. Keratinocytes disaggregated from growing colonies are of differing size and density, and can be separated on isopycnic gradients of Ficoll. The DNA-synthesizing cells are small (mean diameter 14 mum). The nonmultiplying cells are large and have a protein content proportionate to their size. Their final diameter may exceed 30 microns (volume increase greater than 10 fold). Cornified envelopes are found in some of the large cells but in none of the small. In growing colonies, usually 5-10% of the cells have cornified envelopes. The fraction is reduced in colonies growing in the presence of epidermal growth factor. Strain XB, an established keratinocyte line of mouse teratomal origin, also forms cornified envelopes, but the kinetics of the process are different, indicating that the program of terminal differentiation is not initiated at corresponding times in the two cell types.