The activation of protein kinase C (PKC) by diacylglycerol or tumor promoters plays a pivotal role in signal transduction and subsequent activation of cellular processes. Since the activity of this enzyme is dependent on its immediate lipid domain, its relative distribution within the cell may be an important regulatory mechanism. We report here a relative decrease in PKC/phorbol ester receptor associated with the particulate fraction of mouse keratinocytes induced to differentiate by two separate systems. First, proliferating keratinocytes maintained in low Ca2+ (0.09 mM) serum-free medium were induced to differentiate rapidly by the addition of Ca2+ (1.8 mM). A 1.4-fold decrease in the percent of total phorbol receptor binding activity present in the particulate fraction and concomitant increase in binding in the cytosol fraction was evident 20 min after the Ca2+ addition. Second, in keratinocytes that differentiate over a 6 day cultivation period in serum-containing medium with Ca2+ concentration of 1.8 mM, a significant decrease in the percent of the phorbol receptor binding activity present in the particulate fraction was observed as the culture begins to differentiate on days 3 and 4. Maximal phorbol ester binding in the particulate fraction corresponded to the proliferative phase of the culture (day 2), while lower levels of PKC/phorbol ester binding to particulate fractions were noted during the early differentiative phase (days 3 and 4). Addition of the synthetic diacylglycerols 1-oleoyl-2-acetylglycerol or L-alpha-1,2 dioctanyl glycerol at 30 micrograms/ml to proliferating keratinocyte cultures induced a modest increase in two markers of terminal differentiation: cornified envelope formation and transglutaminase levels. These findings, taken together, support the hypothesis that PKC activation plays a role in the initial signalling events for keratinocyte differentiation.