The effect of tumor necrosis factor-alpha (TNF alpha) on the growth and differentiation of normal rat mammary epithelial cells was evaluated using a model system in which cells were grown within a reconstituted basement membrane under defined serum-free medium conditions. TNF alpha (5-10,000 U/ml) stimulated mammary epithelial cell proliferation both under conditions previously considered optimal for their growth as well as in medium deficient in epidermal growth factor (EGF). Moreover, TNF alpha could completely substitute for EGF for cell proliferation. Under optimal conditions, TNF alpha had no effect on morphological differentiation, but in medium either lacking or deficient in EGF or when suboptimal reconstituted basement membrane was used, TNF alpha (5-100 U/ml) had a marked stimulatory effect on lobular and ductal morphogenesis. The effect of TNF alpha on functional differentiation, as assessed by casein production, was more complex. In optimal lactogenic medium, TNF alpha (10-10,000 U/ml) inhibited casein production. In the absence of EGF, however, the effect of TNF alpha appeared to follow a bell-shaped curve. Thus, omission of EGF per se resulted in a marked suppression of casein production, possibly secondary to an inhibition of morphological development. At low concentrations (approximately 5 U/ml), TNF alpha stimulated casein production in parallel to its stimulation of morphological differentiation, although not to the same extent as in medium containing optimal levels of EGF. However, once maximal stimulation of morphogenesis had been achieved, further increasing the TNF alpha concentration from 5 to 100 U/ml resulted in a concentration-dependent inhibition of casein production. This suggests that TNF alpha may have a direct inhibitory effect on casein gene expression. In summary, this is the first study to report that the multifunctional cytokine TNF alpha is a potential regulator of the growth and development of the mammary gland.