It has been suggested that an important step in the progression of some epithelial tumours is the loss of responsiveness to the growth-inhibitory effects of transforming growth factor beta (TGFbeta). Here we describe the use of a model of thyroid tumorigenesis to investigate this question. Seven genetically closely related epithelial cell lines were derived following infection of primary cultures of rat thyroid epithelium with retroviral vectors encoding mutant ras. A strong negative correlation (p < 0.001) was found between the responsiveness of the lines to TGFbeta growth inhibition in vitro and their tumorigenicity in nude mice. Whereas TGFbeta-unresponsive and TGFbeta-stimulated lines formed rapidly growing, poorly differentiated tumours at all injection sites, cells that retained a partial inhibitory response formed much more slowly growing tumours, which showed a high degree of glandular differentiation. A line which retained full inhibition by TGFbeta formed slowly growing tumours at only 30% of injection sites, and cells explanted from these tumours subsequently showed a much reduced TGFbeta response in vitro. Our data using thyroid cells thus greatly strengthen the suggestion from previous studies that loss of growth inhibition by TGFbeta is associated with malignant progression of epithelial tumours. We also present an experimental model of papillary thyroid cancer which may prove useful in identifying the molecular changes involved in progression to the anaplastic form of the disease.