The human squamous cell carcinoma SqCC/Y1 undergoes spontaneous terminal differentiation in the confluent state. The degree of maturation was markedly increased by glucocorticoids and by both human recombinant and placental lipocortin I. Western analyses demonstrated cellular secretion of lipocortin into the medium. Glucocorticoid-induced maturation was antagonized by a lipocortin I-specific monoclonal antibody, by phospholipase A2 (PLA2), and by arachidonic acid. Induction of the differentiation of SqCC/Y1 cells by lipocortin I was prevented by arachidonic acid. The PLA2 inhibitor, dibromoacetophenone, caused an increase in envelope-competent cells indicating that inhibition of PLA2 results in induction of differentiation. Epidermal growth factor prevented the induction of differentiation by both lipocortin I and by glucocorticoids. The nonsteroidal lipoxygenase/cyclo-oxygenase inhibitor, phenidone, also increased SqCC/Y1 differentiation, suggesting that leukotrienes, thromboxanes, and/or prostaglandins may be involved in lipocortin-mediated regulation of SqCC/Y1 maturation. The findings support a role for lipocortin I in mediating the effects of glucocorticoids on epidermal cell differentiation.