Following intrahepatic transplantation in adult syngeneic Fischer 344 rats, diploid cultured rat liver epithelial cells (WB-F344), modified to carry the Escherichia coli beta-galactosidase reporter gene and/or the fluorescent membrane dye PKH26-GL, integrate into hepatic plates and acquire the size and nuclear structure of mature hepatocytes. Additionally, of two aneuploid, neoplastically transformed derivatives of WB-F344 cells, both of which produce aggressively growing tumors when transplanted subcutaneously, cells of one line (GN6TF) do not produce tumors in the liver but integrate into hepatic plates and morphologically differentiate. The other transformed line (GP7TB) retains tumorigenicity in the liver, but cells in the intrahepatic tumors are more differentiated morphologically than are tumors at subcutaneous sites. These results suggest that WB-F344 cells are stemlike cells for hepatocytes and that the hepatic microenvironment induces them to incorporate into hepatic plates and differentiate. Our results also suggest that the hepatic microenvironment regulates the differentiation of some neoplastically transformed hepatic stemlike cells, thereby eliminating or reducing their tumorigenic potential.