In the Dictyostelium slug there are two types of prestalk cells, pstA cells and pstO cells, that differ in their ability to utilize the distal and proximal parts of the promoter of ecmA, a gene that is specifically expressed in prestalk cells. When Rm, a dominant inhibitory form of the regulatory subunit of cAMP-dependent protein kinase (PKA), is expressed under the control of the complete promoter of the ecmA gene (in a construct termed ecmAO:Rm) development proceeds to the slug stage. Although able to form small but outwardly normal slugs, ecmAO:Rm cells are defective in prestalk cell differentiation. In ecmAO:Rm cells, the induction of pstA- and pstO-specific gene expression by the stalk cell inducer DIF is greatly inhibited. Paradoxically, a very large fraction of the cells in an ecmAO:Rm slug show evidence of once having expressed the ecmA and ecmO prestalk markers. However, we present evidence that this is due to abortive prestalk cell differentiation that terminates when sufficient Rm protein has accumulated to block PKA activity. This results in regulative transdifferentiation of prespore cells to form prestalk cells. During their transitory period as prestalk cells the ecmAO:Rm cells coexpress both the ecmA and ecmO markers, indicating a possible link between PKA activity and divergence of the two prestalk cell subtypes. Finally, we show that the level of the DNA binding activity believed to lie at the end of the DIF signal transduction pathway is reduced in ecmAO:Rm slugs.