Many oncogene products are protein kinases and signals are transduced via phosphorylation of proteins. Similarly, protein-dephosphorylation may play a critical role in malignant cell transformation. We have cloned two catalytic subunits of ser/thr protein phosphatase (PP) type 2A, PP2A alpha, and PP2A beta, from a rat liver cDNA library. Both cDNAs encode peptides of 309 amino acids with a difference of only 8 amino acids between the two. All primary hepatocellular hyperplastic nodules or carcinomas, which were induced by a food carcinogen, 2-amino-3-methylimidazo[4,5-f]quinoline, showed up-regulation of expression of the mRNAs of both PP2A alpha and PP2A beta. NIH3T3 cell transformants obtained by introducing activated c-raf, ret-II or Ki-ras oncogenes also showed high levels of PP2A alpha transcripts. Okadaic acid, a non-TPA type tumor promoter, was found to be a potent inhibitor of PP1 and PP2A. Its IC50 for PP1 was much higher than that for PP2A with phosphorylase a as a substrate. When raf and ret-II transformants were cultured with okadaic acid at 8 ng/ml for 2 days, both transformants became flattened and showed strict contact inhibitions. This flat cell morphology was stable for at least one month in the presence of okadaic acid, but in its absence, the cells reverted to their original transformed shape within 7-10 days. Colony formation by raf and ret-II transformants in soft agar was inhibited dose-dependently by okadaic acid; very few colonies grew in the presence of the acid at 8 ng/ml. Okadaic acid had less effect on a transformant of the Ha-ras gene, causing only 50% inhibition of colony formation at 8 ng/ml. The role of protein phosphatases in cellular transformation by certain oncogenes is suggested.