Phosphatidylinositol turnover has recently been implicated in the regulation of proliferation and transformation. Its role in differentiation has now been investigated using Friend erythroleukemia cells, which can be induced to differentiate along the erythroid pathway by dimethylsulfoxide and certain other agents. We have found that levels of the phosphatidylinositol metabolites inositol-trisphosphate and diacylglycerol significantly decrease within 2 hr of induction of Friend cell differentiation. These decreases precede decreased expression of the c-myc proto-oncogene and its protein product. Phorbol 12-myristate, 13-acetate, which can mimic diacylglycerol, blocked differentiation without reversing the decrease in phosphatidylinositol metabolite levels. Two synthetic diacylglycerols, L-alpha-1-oleoyl-2-acetoyl-sn-3-glycerol and sn-1,2-dioctanoylglycerol, also blocked differentiation and commitment. Diacylglycerol regulation of kinase C activity may play a key role in control of c-myc expression and Friend cell differentiation.