Lung carcinoma cell lines were analyzed in culture and in nude mouse xenograft for both morphological appearance and expression of specific proteins that participate in cross-linked envelope formation during normal squamous cell terminal differentiation. Cross-linked envelope formation, induced by artificial influx of millimolar Ca2+ into the cultured cells, was an exclusive trait of squamous, adenosquamous, and mucoepidermoid carcinomas. Small cell lung carcinoma and non-squamous non-small cell lung carcinoma lines, such as adenocarcinoma and large cell carcinoma, were uniformly negative for cross-linked envelope formation. Involucrin, which is incorporated into the cross-linked envelope by the enzyme transglutaminase, was expressed at highest levels in squamous tumors, but several of the non-squamous non-small cell lung carcinoma lines also expressed comparable amounts. On the other hand, transglutaminase activity was consistently higher in squamous as opposed to non-squamous lines, so that in cell culture, a clear contrast between the groups could be observed. A Mr 195,000 protein that is incorporated into cultured human epidermal cell cross-linked envelopes was also observed in some but not all of the squamous lines. Two forms of transglutaminase are expressed in cultured keratinocytes. One of them, tissue transglutaminase, was expressed in the majority of squamous cell lines even though it is not a normal product of squamous differentiation in vivo. Keratinocyte transglutaminase, which is distinct from the tissue form and is normally expressed during terminal differentiation in squamous epithelia. was measurably present in only one of the six squamous cell lines tested. In nude mouse xenografts, keratinocyte transglutaminase, localized immunohistochemically with a biotinylated mouse monoclonal antibody, was again present only in a minority of the squamous lines whereas involucrin was expressed in all. In contrast to involucrin, keratinocyte transglutaminase is not an obligatory component of squamous differentiation in the pulmonary carcinoma cell lines tested. Its expression may be of value in further refining their classification.