NE-4C, a p53-deficient, immortalized neuroectodermal progenitor cell line, was used to investigate the role and importance of cellular interactions in neural commitment and differentiation. NE-4C cells give rise to neurons and astrocytes in the presence of all-trans retinoic acid, if they can establish intercellular contacts. Aggregation per se, however, was insufficient to induce large-scale neuron formation. In the absence of RA, the majority of the aggregated cells died. For neuron formation, therefore, concerted actions of RA and cellular interaction were needed. Electron microscopic and electrophysiological studies revealed that gap junctions were formed between the cells. Persistent blockage of communication via gap junctions with gap junction blockers, however, had no effects on neuron formation. If cell-to-cell connections were disrupted on the fourth day after induction, the rate of neuron production increased significantly. The contact interactions formed between already committed progenitor cells seemed to hinder the formation of novel neurons. The process resembled the phenomenon called "lateral inhibition" first observed in the course of neurogenesis in Drosophila. Our results indicate that NE-4C cells provide a useful model system to investigate the role of contact communication during some early steps of neurogenesis.