Transgenic mice harboring the SV40 early region genes under transcriptional control of regulatory regions from the human surfactant protein C (SP-C) gene were used to study the progression of pulmonary adenocarcinomas in vivo. SP-C/SV40 early region gene (SP-C/TAg) transgenic mice consistently developed pulmonary adenocarcinomas. Distinct neoplasia was first detected at 4 wk of age and large tumor nodules were observed by 20-29 wk of age. SV40 large T mRNA was detected in distal bronchiolar and alveolar epithelial cells prior to tumor formation and in neoplastic cells at all stages of tumor development. SV40 large T mRNA correlated with cyclin-dependent kinase 1 (cdk1) mRNA expression, a marker of cellular proliferation. The nonciliated bronchiolar cell marker, CC10 mRNA, was detected in the majority of lung tumors at all ages, but was consistently decreased in the larger tumor nodules at later stages of tumor progression. CC10 mRNA was not detected in multiple murine lung epithelial (MLE) cell lines derived from the SP-C/TAg mice when cultured in vitro; but was induced in the MLE-15 clonal cell line when propagated in vivo in the flanks of nude mice. SP-C mRNA, an alveolar Type II cell marker, was also expressed in the MLE-15 cells when grown in nude mice. However, CC10 and SP-C mRNAs were expressed in distinct, nonoverlapping regions of the MLE-15 tumors. These studies support the concept that tumor progression is associated with changes in respiratory epithelial cell differentiation, and that the expression of bronchiolar and alveolar cell specific markers can be induced in a clonal cell line with changes in cellular environment.