Transgenic mice which express the simian virus 40 early region (large T-antigen) under the regulatory control of the hormone responsive rat C3(1) gene develop unusual lesions of heterotopic bone growth limited to the plantar sweat glands of the fore- and hind-feet associated with mixed tumor formation. Histologic and electron microscopic evaluations demonstrate that these lesions begin with the Tag-induced proliferation of epithelial and myoepithelial cells in the acinar region of eccrine sweat glands which are found only in the plantar regions of the foot pads in mice. The progression of these mixed proliferative lesions results in atypical hyperplastic epithelium with metaplasia of myoepithelial cells to chondrocytes which deposit extracellular matrix with collagen fibers. Cartilage develops focally between these areas of epithelial proliferation which subsequently ossifies through the process of endochondral bone formation. This proliferative process may mimic epithelial-mesenchymal interactions which occur during embryonic bone formation. Based upon electron microscopic and immunocytochemical analyses of cellular differentiation markers, we propose that the proliferating myoepithelial cells serve as the precursor cells to chondrocytes whose formation may also require the inductive interaction of factors produced by the closely associated proliferating epithelial cells. Tag expression, which occurs in both the epithelial and myoepithelial cells of early lesions but not in surrounding mesenchymal cells, is associated with elevated levels of nuclear p53 and PCNA. Expression of transforming growth factor beta-3(TGFbeta-3) and met are greatly reduced as the epithelial cells proliferate and lose their lumenal organization, whereas TGFbeta-1 expression appears to be increased. These transgenic mice may provide new insights into the processes of ectopic endochondrial bone formation and serve as a useful model for human heterotopic bone disease.