Mammary epithelial cells terminally differentiate in response to lactogenic hormones. We present evidence that oncoprotein overexpression is incompatible with this hormone-inducible differentiation and results in striking cellular morphological changes. In mammary epithelial cells in culture, lactogenic hormones (glucocorticoid and prolactin) activated a transfected beta-casein promoter and endogenous beta-casein gene expression. This response to lactogenic hormone treatment was paralleled by a decrease in cellular AP-1 DNA-binding activity. Expression of the mos, ras, or src (but not myc) oncogene blocked the activation of the beta-casein promoter induced by the lactogenic hormones and was associated with the maintenance of high levels of AP-1. Mos expression also increased c-fos and c-jun mRNA levels. Overexpression of Fos and Jun from transiently transfected constructs resulted in a functional inhibition of the glucocorticoid receptor in these mouse mammary epithelial cells. This finding clearly suggests that glucocorticoid receptor inhibition arising from oncogene expression will contribute to the block in hormonally induced mammary epithelial cell differentiation. Expression of Src resulted in the loss of the normal organization and morphological phenotype of mammary epithelial cells in the epithelial/fibroblastic line IM-2. Activation of a conditional c-fos/estrogen receptor gene encoding an estrogen-dependent Fos/estrogen receptor fusion protein also morphologically transformed mammary epithelial cells and inhibited initiation of mammary epithelial differentiation-associated expression of the beta-casein and WDNM 1 genes. In response to estrogen treatment, the cells displayed a high level of AP-1 DNA-binding activity. Our results demonstrate that high cellular AP-1 levels contribute to blocking the ability of mammary epithelial cells in culture to respond to lactogenic hormones. This and other studies indicate that the oncogene products Mos, Ras, and Src exert their effects, at least in part, by stimulating cellular Fos and probably cellular Jun activity.