The mechanisms of carcinogenesis in nervous tissues are not well understood. It is now established that adenosine 3,',5'-cyclic monophosphate (cAMP)-pathway plays a crucial role in initiating differentiation in transformed and embryonic cells of neuronal and glial origin. Therefore, we propose that defects in the cAMP-pathway may initiate the first phase of carcinogenesis (immortalization). Subsequent genetic abnormalities in oncogenes, anti-oncogenes or other cellular genes individually or in combination may lead to transformation (cancer phenotype). This hypothesis is derived from the fact that an elevation of the cAMP level in murine NB cells induces terminal differentiation in many of these cells in spite of the fact that they are highly aneuploid. Additional changes in cAMP-regulated genes responsible for initiating differentiation may make these cells resistant to cAMP or may make the cAMP-effect on differentiation reversible. Indeed, cAMP-resistant cells exist in NB cell populations, and the cAMP-effect on differentiation is reversible in glioma cells. Identification of genes that initiate, promote and maintain terminal differentiation and those which prevent differentiation following elevation of cAMP in NB cells may increase our understanding of the mechanisms of carcinogenesis. This review illustrates the following: (a) historical background leading to the discovery of cAMP as an inducer of differentiation in nerve cells; (b) identification of potential sites in cAMP-pathway that may play a crucial role in initiating the first phase of carcinogenesis (immortalization) and potential gene targets in immortalized cells whose alterations may cause neoplastic transformation of nerve cells. It is interesting to note that the cAMP pathway remains responsive to an elevated cAMP level in inducing differentiation in NB cells in spite of chromosomal anomalies and genetic changes associated with the maintenance of a cancer phenotype.