In this paper we show that the expression of the squamous differentiated phenotype and mucosecretory phenotype by cultured rabbit tracheal epithelial cells can be regulated by substratum and the presence of retinoic acid. Cells grown on a type I collagen gel matrix in the absence of retinoic acid stratify and undergo squamous differentiation as indicated by the appearance of squamous, cornified cells. Under these conditions cells are rich in desmosomes and heavy tonofilament bundles. These cells also express several biochemical markers for squamous differentiation such as high levels of type I transglutaminase and cholesterol sulfate. High levels of transglutaminase were also observed in areas of squamous metaplasia in tracheas of vitamin A-deficient hamsters. Treatment with retinoic acid not only blocked squamous differentiation as evidenced by the inhibition of the biochemical markers for squamous differentiation but induced the appearance of columnar, polarized cells many of which contained secretory granules. These granules stained positively with periodic acid thiocarbohydrazide and certain lectins indicating the presence of glycoconjugates. Analysis of radiolabeled glycoconjugates released into the medium indicated the synthesis of mucous glycoproteins. It appears that retinoic acid determines the pathway of differentiation whereas the collagen gel matrix is permissive for the expression of both phenotypes. The morphological and biochemical similarities between this in vitro cell system and the normal and metaplastic tracheal epithelium suggest that this rabbit tracheal epithelial cell system is a useful and relevant model to study the regulation of differentiation of the tracheobronchial epithelium.