We used Ha-ras-transformed Madin-Darby canine kidney (MDCK) cells as a model to study possible signal transduction mechanisms underlying the induction of glucagon responsiveness by the differentiation inducers prostaglandin E2 (PGE2) and 8-bromo-cyclic (8-Br-cAMP) AMP and the inhibition of induction by phorbol ester or a serum factor. The steady-state level of inositol 1,4,5-trisphosphate (IP3) was higher in Ha-ras-transformed MDCK cells than in parental MDCK cells. In contrast, the steady-state level of intracellular cAMP of transformed cells was similar to that of normal cells. PGE2 and 8-Br-cAMP increased cAMP content but decreased IP3 levels in a concentration-dependent fashion after 5 days of treatment. We examined the time course for effects of PGE2 and 8-Br-cAMP and found that there was a lag period of 8 to 16 h between elevation of cAMP after the addition of 8-Br-cAMP or PGE2 and the decrease of IP3 levels. Another lag period of 2 days existed before the induction of differentiation. Both the reduction of IP3 levels and the induction of glucagon responsiveness were blocked by phorbol-12-myristate-13-acetate or serum, suggesting that a decrease in the IP3 level might be causally involved in induction of differentiation in transformed MDCK cells. However, induction of differentiation was not due to changes in the expression or guanine nucleotide-binding properties of p21 protein. It is likely that cAMP has a direct regulatory effect on the phospholipid signaling pathway. We conclude that perturbation of the inositol phosphate signaling pathway may be responsible for the induction of differentiation by PGE2 and 8-Br-cAMP in transformed MDCK cells.