A primary function of cadherins is to regulate cell adhesion. Here, we demonstrate a broader function of cadherins in the differentiation of specialized epithelial cell phenotypes. In situ, the rat retinal pigment epithelium (RPE) forms cell-cell contacts within its monolayer, and at the apical membrane with the neural retina; Na+, K(+)-ATPase and the membrane cytoskeleton are restricted to the apical membrane. In vitro, RPE cells (RPE-J cell line) express an endogenous cadherin, form adherens junctions and a tight monolayer, but Na+,K(+)-ATPase is localized to both apical and basal-lateral membranes. Expression of E-cadherin in RPE-J cells results in restriction and accumulation of both Na+,K(+)-ATPase and the membrane cytoskeleton at the lateral membrane; these changes correlate with the synthesis of a different ankyrin isoform. In contrast to both RPE in situ and RPE-J cells that do not form desmosomes, E-cadherin expression in RPE-J cells induces accumulation of desmoglein mRNA, and assembly of desmosome-keratin complexes at cell-cell contacts. These results demonstrate that cadherins directly affect epithelial cell phenotype by remodeling the distributions of constitutively expressed proteins and by induced accumulation of specific proteins, which together lead to the generation of structurally and functionally distinct epithelial cell types.