We have developed an in vitro system to examine the influence of adipocytes, a major mammary stromal cell type, on the growth of a murine mammary carcinoma, SP1. Previously, we have shown that 3T3-L1 adipocytes release a mitogenic factor, hepatocyte growth factor, which strongly stimulates proliferation of SP1 cells. We now show that 3T3-L1 pre-adipocytes secrete active inhibitory molecules which inhibit DNA synthesis in SP1 cells. In addition, latent inhibitory activity is present in conditioned media (CM) from both pre-adipocytes and adipocytes, and is activated following acid treatment. CM also inhibited DNA synthesis in Mv1Lu wild type epithelial cells, but not DR27 mutant epithelial cells which lack TGF-beta type II receptor. Inhibitory activity of CMs was partially abrogated by neutralizing anti-TGF-beta1 and anti-TGF-beta2 antibodies, and was removed following ultrafiltration through membranes of 10,000 Mr but not 30,000 Mr pore size. These results show that the inhibitory effect on DNA synthesis is mediated by TGF-beta1-like and TGF-beta2-like molecules. In addition, acid-treated CM as well as purified TGF-beta inhibited differentiation of pre-adipocytes. Untreated pre-adipocyte CM, but not mature adipocyte CM, spontaneously inhibited adipocyte differentiation. Together, these findings indicate that pre-adipocytes spontaneously activate their own secreted TGF-beta, whereas mature adipocytes do not, and suggest that activation of TGF-beta has a potent negative regulatory effect on adipocyte differentiation and tumor growth. Thus, TGF-beta may be an important modulator of tumor growth and adipocyte differentiation via both paracrine and autocrine mechanisms. These findings emphasize the importance of adipocyte-tumor interactions in the regulation of tumor microenvironment.