Clones of epithelial-like cells were established from urethan-induced mouse lung adenoma. Electron microscopy of one clone showed that the cells contained lamellar inclusion bodies similar in appearance to those seen in the adenoma precursor, the type II alveolar pneumocyte. The clones exhibited characteristics associated with both "transformed" and "normal" cells in culture; i.e., although aneuploid, the cells grew at a slower rate than most transformed cells, did not form colonies in soft agar and, after prolonged subculture, were not tumorigenic when transplanted s.c. into appropriate hosts. Hydrocortisone treatment of the cloned cells led to growth stimulation and the eventual acquisition of neoplastic potential. Epithelial tumors were produced more readily in athymic, nude mice than in antilymphocyte serum-treated A/He mice. The cells are producing a C-type RNA virus into the culture medium.