A system for combined in vitro and in vivo culture of epithelial cells from distal human airways was established. Lung tissues that appeared to be generally normal were obtained from lungs removed surgically from patients with lung cancer. Small pieces of peripheral lung tissue were placed on culture dishes and cultured in F-12 complete medium containing serum and various growth factors, to obtain outgrown cells. For in vivo culture, rat tracheal grafts were de-epithelialized by freezing and thawing and were then used as culture vessels. Outgrown cells were harvested after 4 weeks of in vitro culture, inoculated into the denuded tracheal grafts, and then implanted into nude mice. For comparative purposes, bronchial fragments were also cultured in vitro and in vivo, by the same method. In vitro efficiency of colony formation was about the same for cells derived from peripheral lung tissue and from bronchial tissue (14.8 +/- 8.9% and 16.0 +/- 4.7%, respectively). Four weeks after implantation, the grafts were retrieved and processed for morphologic evaluation. By that time, grafts in both groups had totally re-epithelialized. Therefore, the growth potential of the cells derived from peripheral lung tissue and from bronchi in vivo appeared to be almost the same. Newly formed epithelial cells in grafts showed the same well-developed pseudostratified columnar form in both groups at 4 weeks. The time course of epithelial cell differentiation was also studied, with outgrown cells from lungs. Two days after implantation, undifferentiated cells were attached to the inner surface of the grafts as a single cell layer, and at 4 days, small cell nests containing mitotic cells were observed. At 1 week, the grafts were totally covered with undifferentiated cells. Over 2 to 3 weeks, differentiated cells (ciliated, secretory, and basal cells) appeared, and the epithelia had become fully developed by 4 weeks. As reported previously, cells that outgrew from lung explants were considered to be derived from bronchioles. Therefore, this system may be useful for studies of growth and differentiation of human bronchiolar epithelial cells under various conditions.