Hyperplasia and squamous differentiation in epidermal and tracheobronchial epithelial cells is a multistage process. In stage I, quiescent progenitor cells are recruited to reenter the cell cycle. Protein kinase C activators, retinoids, cytokines, and polypeptide growth factors have been identified to control this stage of hyperproliferation. In stage II, cells become committed to irreversible growth arrest, which in normal cells appears to be a prerequisite for the expression of the differentiated phenotype (stage III). Confluence or treatment with interferon gamma or phorbol esters are conditions that induce irreversible growth arrest and differentiation. Retinoids do not block stage II but specifically suppress the expression of stage III. The action of retinoids appears to be mediated by nuclear retinoic acid receptors. Studies understanding the mechanisms that regulate hyperplasia and squamous metaplasia may provide insight into the processes that lead to squamous cell carcinomas. Such studies may also provide new strategies for chemotherapy and chemoprevention.