Human papillomavirus (HPV) types 16, 18, 31, and 33 have been implicated as etiologic agents of cervical and penile cancer. Using a cell culture system for keratinocytes which allows stratification and production of differentiation-specific keratins, we have examined the effects of one of these viruses, HPV-16, on the differentiation capabilities of human epithelial cells. A plasmid containing the HPV-16 genome and a neomycin-selectable marker was transfected into primary human epidermal cells and SCC-13 cells, an immortalized squamous cell carcinoma cell line. Cloned neomycin-resistant cell lines were isolated and examined by cell culture on raised collagen rafts. Cell lines containing HPV-16 DNA retained the ability to stratify and express differentiation-specific keratins in the raft system but otherwise failed to differentiate normally. The histological abnormalities induced by HPV-16 closely resembled those seen in genital intraepithelial neoplasia in vivo. Hence, our results support the role of HPV-16 as an etiologic agent in the development of genital neoplasias and suggest a specific system for the study of HPV-16-induced epithelial cancers.