Alveolar type II pulmonary epithelial cells are the cells of origin of fibrosis-associated peripheral lung cancer (scar cancer), a major form of human cancer. A unique model for this type of cancer is provided by crystalline silica-induced lung carcinomas in rats. To study mechanisms of neoplastic transformation in alveolar type II cells, we chose the recently developed cell line of fetal rat lung epithelium, FRLE (Leheup, BP et al, Lab Invest 60:791-807, 1989). In present studies, the FRLE cell line was characterized and found to retain lamellar bodies and other ultrastructural features of the cell of origin. The FRLE line, at passage 38, was found to be aneuploid, with most chromosome counts in the hypotetraploid range, and 2 marker chromosomes, but it was not tumorigenic in nude mice. The cells of this line were found to internalize silica particles in their cytoplasm; a small number of particles, mostly smaller than 0.4 microm, were localized within nuclei. In order to obtain a neoplastic phenotype of this cell type, FRLE cells were transformed by lipofection with plasmid pZipyK12yCys, carrying a K-ras oncogene with a Gly to Cys mutation on codon 12. Most of the resulting cell lines showed neoplastic morphology and were highly tumorigenic in nude mice, resulting in anaplastic carcinomas. A few transfected cell lines with near-normal morphology were not tumorigenic. By electron microscopy, the ras- transformed cell lines showed nuclear abnormalities and loss of lamellar bodies. The ras-trans-formed lines were used as reference standards in the process of developing criteria for the selection of transformed colonies and a transformation assay suitable for mechanism studies on transformation by silica and other carcinogens.