Serum-free mouse embryo (SFME) cells, derived in medium in which serum is replaced with growth factors and other supplements, display distinctive properties: (i) SFME cells do not lose proliferative potential or show gross chromosomal aberration upon extended culture, (ii) these cells depend on epidermal growth factor for survival; and (iii) SFME cell proliferation is reversibly inhibited by serum. Treatment of SFME cells with serum or transforming growth factor beta led to the appearance of glial fibrillary acidic protein, a specific marker for astrocytes. The appearance of glial fibrillary acidic protein in cultures was reversed upon removal of transforming growth factor beta or serum. Cells with properties similar to SFME cells were also isolated from adult mouse brain. These results suggest a role for transforming growth factor beta in astrocyte differentiation in developing organisms and in response to injury and identify the cell type that has the unusual properties of SFME cells.