It has been previously shown that keratinocytes express a high level of 25-hydroxyvitamin D(3) (25-OHD(3)) 1alpha-hydroxylase (1alpha-hydroxylase). 1alpha-Hydroxylase catalyzes the conversion of 25-OHD(3) to 1alpha,25-dihydroxyvitamin D(3) [1,25(OH)(2)D(3)]. 1,25(OH)(2)D(3) is both antiproliferative (i.e., suppresses cell growth) and prodifferentiative (i.e., induces cell differentiation) in many cell types. We hypothesized that local production of 1,25(OH)(2)D(3) by keratinocytes may suppress their growth and induce their differentiation in an autocrine fashion. To test this hypothesis, we inactivated both 1alpha-hydroxylase alleles in a ras-transformed keratinocyte cell line, HPK1Aras, which typically produces squamous carcinoma in nude mice. To inactivate 1alpha-hydroxylase expression by HPK1Aras cells, we disrupted both alleles of the 1alpha-hydroxylase gene by homologous recombination. Lack of expression and activity of 1alpha-hydroxylase was confirmed by Northern blot analysis and detected conversion of 25-OHD(3) to 1,25(OH)(2)D(3). We then examined the effect of substrate 25-OHD(3) on parameters of growth and differentiation in the double knockout cell line as compared to wild-type HPK1Aras cells in vitro. It was found that 1alpha-hydroxylase inactivation blocked the antiproliferative and prodifferentiative effect of 25-OHD(3). These in vitro effects were further analyzed in vivo by injecting knockout or control cells subcutaneously in severely compromised immunodeficient mice. Tumor growth was accelerated and differentiation was inhibited in mice given injections of knockout cells as compared to control cells in the presence of substrate 25-OHD(3). Our results demonstrate, for the first time, that 1alpha-hydroxylase expression by keratinocytes plays an important role in autocrine growth and differentiation of these cells, and suggest that expression of this enzyme may modulate tumor growth in squamous carcinomas.