Primary cultures of mouse mammary epithelial cells synthesize significant quantities of chondroitin and heparan sulfate proteoglycans (16). Long term treatment of such cultures with p-nitrophenyl-beta-D-xylopyranoside leads to a 10-20 fold increase in the synthesis and secretion of free chondroitin sulfate glycosaminoglycan (GAG) chains and assembly of a cell-associated matrix that is relatively enriched in heparan sulfate proteoglycan. This modulation of cell-synthesized proteoglycans leads to significant changes in cell morphology and cellular differentiation. Notably cells cultured on plastic culture dishes change from being flattened to cuboidal. The synthesis of the milk proteins alpha 1, and beta-casein is also increased as is the formation of fat droplets and fat droplet membrane components. Promotion of differentiation increases with increasing xyloside concentration in the range 0-1.5 mM, but there may be a block in secretion at higher xyloside concentrations. While the detailed mechanisms remain to be elucidated, we conclude that the composition of proteoglycans incorporated into the matrix (and possibly the glycosaminoglycans secreted into the medium), may play a significant role in maintaining the phenotypic characteristics of terminally differentiated mammary epithelial cells.