Neonatal rat hepatocytes (NRH) in primary cultures were transformed upon transfection with plasmid pSV 5-neo containing polyoma virus (Py) early region sequences. Clones of cells (Py-NRH) resistant to the antibiotic G418 were obtained after selection in arginine-deficient medium with serum, epidermal growth factor (EGF), transferrin and insulin. They did not undergo senescence during serial subcultivation. One clone (Py-NRH Cl A) harbored a single integrated copy of Py early region sequences and expressed transforming Py genes, hepatocyte-specific transcripts, including albumin, alpha-fetoprotein (AFP) and tyrosine aminotransferase (TAT) mRNAs. Subclones isolated after about 45 cell doublings still contained albumin and AFP, but no TAT mRNAs, indicating that long-term stabilization of liver functions is not necessarily permanent unless selected for (e.g. arginine synthesis). Cells grew unrestricted in medium containing insulin and no longer required EGF. Cells grew in agar, secreted a beta-transforming growth factor-like activity into the medium and were tumorigenic in nude mice. Hybridization studies using v-erbB DNA as a probe showed that Py-NRH, unlike neonatal hepatocytes in primary culture, express the EGF receptor gene at low or undetectable levels. Py-NRH Cl A and a subclone (5A) derived from it, however, contained elevated levels of rat c-neu oncogene-related RNA, whereas levels in another subclone (3A) were low or undetectable. These findings demonstrate that a proto-oncogene was activated after transfection of hepatocytes with DNA tumor virus transforming genes. However, the expression of c-neu oncogene is not related to the maintenance of the transformed state.