Transforming growth factor-alpha (TGF-alpha), a member of the epidermal growth factor (EGF) family, binds to the EGF-receptor (EGF-R). The early expression and widespread distribution of TGF-alpha and EGF-R in the developing central nervous system (CNS) suggest that TGF-alpha may play a role in the developing CNS. To study possible effects of TGF-alpha on cholinergic differentiation in the basal forebrain, we cultured septal nuclei with adjacent basal forebrain from embryonic rat brain in the presence and absence of TGF-alpha. At the highest dose of TGF-alpha used (100 ng/mL), activity of choline acetyltransferase (ChAT; EC 22.214.171.124) and the number of cholinergic neurons doubled. However, because protein levels tripled, specific ChAT activity actually declined. To determine the mechanism accounting for the increase in ChAT, we labeled dividing precursors present in the cultures with a replication-deficient retrovirus expressing beta-galactosidase in the presence and absence of TGF-alpha. By staining the cultures for both LacZ and ChAT, we determined that the precursor population expanded in size (individually labeled clones contained more cells), but the percentage of cholinergic neurons present in the clones was unchanged. Therefore, while TGF-alpha expands the precursor pool, it does not promote cholinergic differentiation. Interleukin-9, included to prompt neuronal differentiation, did not by itself increase ChAT activity, nor did it enhance the action of TGF-alpha. This was true even when basic fibroblast growth factor was included.