A deficiency in DNA repair, manifest as enhanced chromatid radiosensitivity during the G2 phase of the cell cycle, together with a proliferative stimulus such as that provided by active oncogenes may be necessary and sufficient for the malignant neoplastic transformation of human keratinocytes in culture. Normal epidermal keratinocytes established as continuous cell lines by transfection with pSV3-neo or infection with adeno 12-SV40 hybrid virus developed enhanced G2 chromatid radiosensitivity after 18 passages in culture. In contrast to cells from primary or secondary culture, these cells could be transformed to malignant neoplastic cells by infection with Kirsten murine sarcoma virus containing the Ki-ras oncogene or in one line by the chemical carcinogen, N-methyl-N′-nitro-N-nitrosoguanidine; both of these agents produced a marked proliferative response. Cytological heterogeneity and karyotypic instability characterized the cells during their progression to neoplasia. These results are interpreted in terms of a mechanism for neoplastic transformation.