Previous studies have shown that normal human tracheobronchial epithelial (HBE) cells undergo squamous differentiation upon treatment with phorbol 12-myristate 13-acetate (PMA). In this study, we report that induction of this differentiation program is accompanied by an increase in the accumulation of cholesterol sulfate and in transglutaminase type I activity, two markers of squamous differentiation. Several carcinoma cell lines did not exhibit an increase in these differentiation markers after PMA-treatment and appear to have acquired a defect in the mechanism that triggers differentiation. The diacylglycerol analogue, didecanoylglycerol (diC10), was also able to induce squamous differentiation. Bryostatin 1, another activator of protein kinase C, did not induce terminal cell division or increase cholesterol sulfate accumulation or transglutaminase type I activity. Bryostatin 1 not only failed to inhibit cell proliferation and to induce differentiation but antagonized the PMA-and diC10-induced commitment to terminal differentiation. The bryostatin blocked both the PMA-induced terminal cell division as well as the expression of the two differentiation markers. Retinoids were found not to affect the PMA-induced commitment to terminal cell division but did inhibit the expression of the differentiated phenotype. Our results indicate that the bryostatins and retinoids affect the multistep process of squamous differentiation in tracheobronchial epithelial cells at two different stages. © 1989, American Association for Cancer Research. All rights reserved.