Three lines of transgenic mice were produced that develop pancreatic neoplasms as a consequence of expression of an elastase I-SV40 T-antigen fusion gene in the acinar cells. A developmental analysis suggests at least a two-stage process in the ontogeny of this disease. The first stage is a T antigen-induced, preneoplastic state characterized by a progression from hyperplasia to dysplasia of the exocrine pancreas, by an increased percentage of tetraploid cells, and by an arrest in acinar cell differentiation. The second stage is characterized by the formation of tumor nodules that appear to be monoclonal, because they have discrete aneuploid DNA contents. The cells within the nodules as compared to normal pancreatic tissue have less total RNA by a factor of 5, less pancreas-specific messenger RNA by a factor of about 50, and increased levels of T-antigen messenger RNA. A tumor cell line has been derived that retains both pancreatic and neoplastic properties.