Cellular and molecular aspects of chemical carcinogenesis in lining epithelia are studied in mouse epidermis by in vivo and in vitro techniques. Normal epidermal growth and differentiation are regulated by extracellular calcium. Calcium may exert its effects indirectly via regulation of intracellular concentrations of sodium and potassium. This control appears to involve phospholipid turnover and new protein synthesis and may involve activation of protein kinase C. Carcinogens alter the regulation of epidermal differentiation. This change is highly correlated to the initiating event in carcinogenesis. An activated ras oncogene also alters epidermal differentiation, but this effect is conditional and may be modulated by exposure to a tumor promoter. Initiated cells or mouse epidermal tumors do not transcribe unusually high levels of ras or other known retroviral oncogenes. Cloning and sequencing of keratin genes, a family of genes coding for the major cytoskeletal and differentiation proteins of epidermis, has revealed common structural features for keratins coordinately expressed during differentiation. The coordinate regulation of these genes can be altered by transformation or exposure to tumor promoters. Promoters markedly accelerate epidermal differentiation, but this can be blocked by antipromoting retinoids which induce a unique transglutaminase possibly counteracting the transglutaminase induced by promoters. The biological effects of tumor promoters can be reproduced by exposing cells to phospholipase C, suggesting that phospholipid turnover and activation of protein kinase C are essential pathways in promotion. While initiation and promotion both involve changes in epidermal differentiation, another genetic change is required prior to carcinoma formation. This change can be accomplished by genotoxic agents but not by tumor promoters.