Control of the terminal event in cellular differentiation is an important normal regulatory process, and the expression of defects in the control of this process has been implicated in the pathogenesis of cancer. To determine if tumor necrosis factor (TNF), which is an important biological response modifier, can inhibit terminal differentiation, we have studied 3T3 T mesenchymal stem cells. This experimental cell system was employed because a well-defined series of steps in differentiation has been defined and cells at each stage of differentiation can be isolated. For example, nonterminal differentiated cells can be isolated, and their transition to a terminal differentiation state can be evaluated. The most interesting results in the current studies show that TNF blocks the terminal event in mesenchymal stem cell differentiation. Inhibition of the terminal event of differentiation by TNF is reversible and is not associated with inhibition of selective or general protein synthesis. Evidence is also presented that cell clones that are defective in their ability to undergo the terminal event in differentiation secrete factor(s) that inhibit the terminal event in differentiation. These observations suggest that the inhibition of the terminal event in differentiation may be mediated via autocrine or paracrine regulatory molecules such as tumor necrosis factor.