In this study the regulation of squamous cell differentiation in several rat esophageal epithelial cell lines is examined. Nontumorigenic RE-149 cells undergo a program of squamous cell differentiation at confluence. This program of differentiation is influenced by the concentration of calcium in the medium and by the presence of retinoic acid. High calcium concentration stimulates terminal cell division, as indicated by a reduction in colony-forming efficiency, and increases the expression of the differentiated phenotype as indicated by an increase in cholesterol sulfate accumulation and cross-linked envelope formation. Retinoic acid inhibits squamous cell differentiation as both cholesterol sulfate accumulation and cross-linked envelope formation are reduced. Two tumorigenic cell lines, RE-B2 and RE-2BT, do not undergo squamous cell differentiation in vitro. High calcium concentration in the medium did not significantly reduce colony-forming efficiency or induce cross-linked envelope formation. High calcium concentration or retinoic acid had only a limited effect on the accumulation of cholesterol sulfate. RE-B2T cells exhibit high levels of cholesterol sulfate and cholesterol sulfotransferase activity. These levels appear no longer controlled by calcium or retinoic acid, indicating that the synthesis of cholesterol sulfate occurs in a constitutive manner. The altered responses of RE-2B and B2T cells to calcium and retinoic acid suggest that these malignant cells have acquired one or more defects in the control of differentiation.