A method was developed to distinguish between cell surface-associated and released proteolytic activity. The approach utilizes 125I-labeled protein substrate covalently linked to modified latex beads. These beads are either rolled over the surface of cells grown in culture or next to the cells. Using this method we have studied normal, carcinogen-treated and spontaneously transformed rat liver epithelial cells. Transformed cells always released greater amounts of radioactivity than carcinogen-treated or normal hepatocytes when the beads were presented next to the cells, indicating an enhanced release of proteolytic enzymes. When the substrate was in contact with the viable cell surfaces both the carcinogen-treated and transformed cells released more radioactivity from the beads' surface than the tissue culture-adapted normal cells. This enhanced proteolytic cleavage indicated that there is an altered surface topology or an increased surface-associated enzyme activity on both the carcinogen-treated and transformed cells.