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Functional differentiation in mammary epithelia requires specific hormones and local environmental signals. The latter are provided both by extracellular matrix and by communication with adjacent cells, their action being intricately connected in what appears to be a cascade of events leading to milk production. To distinguish between the influence of basement membrane and that of cell-cell contact in this process, we developed a novel suspension culture assay in which mammary epithelial cells were embedded inside physiological substrata. Single cells, separated from each other, were able to assimilate information from a laminin-rich basement membrane substratum and were induced to express beta-casein. In contrast, a stromal environment of collagen I was not sufficient to induce milk synthesis unless accompanied by cell-cell contact. The expression of milk proteins did not depend on morphological polarity since E-cadherin and alpha 6 integrin were distributed evenly around the surface of single cells. In medium containing 5 microM Ca2+, cell-cell interactions were impaired in small clusters and E-cadherin was not detected at the cell surface, yet many cells were still able to produce beta-casein. Within the basement membrane substratum, signal transfer appeared to be mediated through integrins since a function-blocking anti-integrin antibody severely diminished the ability of suspension-cultured cells to synthesize beta- casein. These results provide evidence for a central role of basement membrane in the induction of tissue-specific gene expression.