Two epithelial cell lines designated LE/2 and LE/6 were established from cells isolated by centrifugal elutriation from the livers of carcinogen-treated rats. Both cell lines exhibit some characteristics of fetal liver cells, such as the expression of the 2.3-kilobase alpha-fetoprotein mRNA, aldolase A, and lactate dehydrogenases 4 and 5. Primary cultures contain gamma-glutamyl transferase-positive cells which do not proliferate in vitro. After the first passage, the LE/2 and LE/6 cell lines are uniformly gamma-glutamyl transferase negative. Neither cell line is transformed as assayed by morphology, anchorage-independent growth, or tumor formation in nude mice. By the 50th passage, LE/6 cells form numerous colonies in soft agar in the presence of epidermal growth factor, while no colonies grow in medium lacking this growth factor. Clonal cell populations derived from five epidermal growth factor-induced soft agar colonies were not tumorigenic in nude mice. This indicates that, although epidermal growth factor-responsive late passage cells had acquired some of the phenotypic properties commonly associated with tumor cells, these cells were not fully transformed. Transformation of LE/6 cells was accomplished by transfection of the rasH oncogene (EJ). Subcutaneous inoculation of rasH (EJ)-transfected LE/6 cells produced tumors at the site of injection with histological features of moderate to well-differentiated trabecular hepatocellular carcinomas. Tumor cell lines derived from the nude mouse tumors are gamma-glutamyl transferase positive and express alpha-fetoprotein mRNA. One clonal cell line expresses both alpha-fetoprotein and albumin mRNA. These results show that nonparenchymal liver epithelial cells transfected with an activated oncogene can give rise to differentiated hepatocellular tumors similar to those induced in livers of rats fed a carcinogenic diet.