Transforming growth factor beta 1 (TGF-beta 1) is a potent inhibitor of hepatocyte proliferation. Since loss of sensitivity to growth inhibition is thought to contribute to the development of neoplasia, we analyzed the expression of TGF-beta 1 mRNA during hepatocarcinogenesis in vivo and in cultured liver epithelial cells (oval cells) obtained from carcinogen-treated animals. We found that TGF-beta 1 mRNA increases in the liver during carcinogenesis and that, at the early stages of the process, oval cells but not hepatocytes contain the growth factor mRNA. Moreover, immortalized, nontumorigenic oval cells (LE/6 cell line) continued to produce TGF-beta 1 mRNA in culture. TGF-beta 1 message markedly decreased upon cell transformation, but message levels, although generally low, were variable in various tumor cell clones. A consistent feature of the tumorigenic cell lines was a loss of sensitivity to TGF-beta 1 growth inhibition. Tumor cells could bind TGF-beta 1 with similar capacity as normal cells and had the same type of receptors (Mr 280,000, 85,000, and 65,000) capable of binding iodinated TGF-beta 1, suggesting that the loss of sensitivity to TGF-beta 1 in transformed liver epithelial cells involves postreceptor mechanisms. Further studies showed that c-myc is not a target for TGF-beta 1 in liver epithelial cells and that TGF-beta 1 no longer induces fibronectin mRNA in transformed cells. The data presented are consistent with the hypothesis that TGF-beta 1 secreted during liver carcinogenesis may inhibit the proliferation of normal cells while providing a selective advantage for the growth of cells that are "partially transformed" and are unresponsive to the factor.