The goal of this work was to establish an assay for transformation of epithelial cells. Two epithelial cell lines were obtained after microinjecting transforming genes into primary rabbit mammary secretory cells. The cell lines were analyzed for their oncogenic potential and for the maintenance of a differentiated phenotype. A fully transformed cell line, which retained epithelial cell organization, was obtained by coinjecting simian virus 40 DNA and the activated human c-Ha-ras gene. The proliferation rate of these cells was high, with a doubling time of 16 h. Their growth was anchorage independent, and they had lost contact inhibition. The cells were tumorigenic in nude mice, but had no metastatic potential. Both microinjected DNAs were efficiently transcribed and translated, in contrast to the casein genes, which were expressed in primary cells but not in the transformed cell line. An immortalized cell line established after injection with simian virus 40 DNA alone was characterized by a moderate rate of proliferation with a doubling time of approximately 30 h. The growth of these cells was contact inhibited and anchorage dependent. The cells were not tumorigenic in nude mice. The viral DNA was expressed during early passages, as shown by the presence of the large T antigen in cell nuclei, but not at later passages. A high number of lactogenic hormone receptors were found associated with the cell surface. Despite the presence of these receptors, no induction of genes coding for milk proteins was observed after addition of prolactin. These data demonstrate that this assay system can be used to assess the immortalizing and transforming potential of candidate oncogenes in epithelial cells.