The role of type beta transforming growth factor (TGF beta) and epidermal growth factor (EGF) as regulators of the growth and differentiation of cultured human neonatal epidermal cells and squamous carcinoma cells was investigated in postconfluent cultures. Neither cell proliferation nor DNA synthesis was affected by treatment with TGF beta alone; however, EGF significantly stimulated cell growth, and this process was specifically antagonized by TGF beta. In addition, TGF beta inhibited the maturation of human foreskin-derived epidermal cells, as measured by their competence to synthesize involucrin and to form cornified cell envelopes, in a dose-dependent manner. Although treatment with EGF did not affect the maturation of human foreskin-derived epidermal cells, the combination of a low concentration of TGF beta with EGF resulted in significant enhancement of the maturation of these normal keratinocytes. Growth of three of four squamous carcinomas in the presence of EGF was not inhibited by TGF beta. In addition, all four carcinomas were either totally or partially resistant to the induction of maturation by the combination of TGF beta and EGF. This resistance of squamous carcinomas to TGF beta was paralleled by an increased sensitivity to the antikeratinizing effects of EGF. Thus, TGF beta inhibited the mitogenic stimulation of keratinocytes by EGF and induces cell maturation.