The highly toxic environmental contaminant 2,3,7,8-tetra-chlorodibenzo-p-dioxin (TCDD) is a potent carcinogen and tumor promoter, and affects cellular proliferation and differentiation both in vivo and in vitro. This report presents data showing that TCDD enhances the proliferation of two human squamous carcinoma cell lines in monolayer culture by inhibiting growth arrest at high cell density. SCC-15G and SCC-25 cells were treated with 0-100 nM TCDD in culture medium, and examined for changes in proliferation and differentiation. TCDD stimulated increases in cell number and DNA synthesis of both cell lines, and inhibited differentiation of SCC-15G cells in a dose-dependent manner. The minimum effective concentrations for increases in proliferation were 0.1 nM in SCC-15G cells and 1 nM in SCC-25G cells. The saturation density of SCC-15G cells grown in 10 nM TCDD was approximately double that of untreated controls, while the saturation density of SCC-25 cells was 50% above controls. TCDD-induced increases in proliferation were detectable only in cells exposed at subconfluent density, then assayed after control cultures had reached high-density growth arrest. There was no difference in cell number or DNA synthesis between control and TCDD-treated cultures when cells were both treated and assayed during the logarithmic phase of growth, nor in cultures treated after the cells had reached high density growth arrest. Therefore, TCDD-induced proliferation resulted from failure of treated cells to undergo normal density-dependent growth arrest rather than from direct mitogenic stimulation of the cells. Differentiation (envelope competence and keratin staining) of SCC-15G cells was inhibited by TCDD, despite the fact that in these cultures cell density was twice that of the controls. The sensitivity of SCC-15G cells to modulation of growth and differentiation by TCDD provides the basis for a model to examine the biological mechanisms of TCDD induced alterations in proliferation and differentiation of epidermal cells. © 1990 Oxford University Press.