The dense layer of fibroblasts that accumulate around malignant breast epithelial cells (i.e., desmoplastic reaction) arises from the breast adipose tissue and provides structural and biochemical support for breast cancer. We report herein a number of epithelial-stromal interactions responsible for desmoplastic reaction in breast cancer using cultured 3T3-L1 murine fibroblasts and human adipose fibroblasts, which can be activated with a mixture of hormones to differentiate to mature adipocytes. Adipocyte differentiation was inhibited by coculturing fibroblasts with various breast cancer cell lines (T47D, MCF-7, SSC202, SSC78, and SSC30) completely or by breast cancer cell conditioned media in a dose-dependent manner; on the other hand, adipocyte differentiation was not inhibited by coculturing with normal human primary mammary epithelial cell conditioned medium. This tumor effect was eliminated using neutralizing antibodies against tumor necrosis factor (TNF)-alpha or interleukin (IL)-11. TNF-alpha and IL-11 levels were 2.5-3 times higher in T47D conditioned medium compared with control medium, and TNF-alpha transcripts were detectable in T47D but not in 3T3-L1 cells in culture, indicating that the malignant epithelial cell is the major site of cytokine production. This was confirmed in vivo in mastectomy specimens, where immunoreactive TNF-alpha and IL-11 were readily detectable in malignant epithelial cells but not in the majority of the surrounding fibroblasts. Adipocyte differentiation is mediated by the expression of a cascade of adipogenic transcription factors, including CCAAT/enhancer binding protein (C/EBP)beta, C/EBPdelta, peroxisome proliferator-activated receptor (PPAR)gamma and C/EBPalpha. C/EBPalpha and PPARgamma are essential for this process. We demonstrated by Northern analysis that exposure of activated 3T3-L1 cells to T47D cell conditioned medium strikingly decreased the levels of PPARgamma and C/EBPalpha transcripts and increased the levels of C/EBPbeta and C/EBPdelta transcripts. In these 3T3-L1 cells, inhibition of differentiation was also confirmed by markedly suppressed levels of aP2 mRNA, which is an adipocyte-specific gene. These in vitro observations were confirmed in sections of human malignant breast tumors, where immunoreactive C/EBPalpha was readily detectable in adipose flbroblasts distant to the tumor but not in intratumoral fibroblasts. Treatment of 3T3-L1 cells with T47D cell conditioned medium or TNF-alpha changed neither the numbers of cells in G0-G1, S, and G2 phases nor the rate of [3H]thymidine incorporation, thus ruling out a proliferative effect of malignant cells on the surrounding fibroblasts. In summary, desmoplastic reaction primarily occurs via the action of cytokines (TNF-alpha and IL-11) secreted by the malignant epithelial cells to inhibit differentiation of adipose fibroblasts to mature adipocytes. This tumor-induced block in adipocyte differentiation is mediated by the selective inhibition of expression of the essential adipogenic transcription factors, i.e., PPARgamma and C/EBPalpha.