Protein kinase C delta (PKC delta) is tyrosine-phosphorylated and catalytically inactive in mouse keratinocytes transformed by a ras oncogene. In several other model systems, Src kinases are upstream regulators of PKC delta. To examine this relationship in epidermal carcinogenesis, v-ras transformed mouse keratinocytes were treated with a selective Src kinase inhibitor (PD 173958). PD 173958 decreased autophosphorylation of Src, Fyn, and Lyn kinases and prevented tyrosine phosphorylation of the Src kinase substrate p120. PD 173958 also prevented PKC delta tyrosine phosphorylation and activated PKC delta as detected by membrane translocation. Expression of keratinocyte differentiation markers increased in PD 173958-treated v-ras-keratinocytes, and fluid-filled domes emerged, indicative of tight junction formation. Antisense PKC delta or bryostatin 1 inhibited dome formation, while overexpression of PKC delta in the presence of PD 173958 enhanced the formation of domes. Plasmids encoding phenylalanine mutants of PKC delta tyrosine residues 64 and 565 induced domes in the absence of PD 173958, while phenylalanine mutants of tyrosine residues 52, 155, and 187 were inactive. Thus, Src kinase mediated post-translational modification of PKC delta on specific tyrosine residues in ras-transformed mouse keratinocytes inactivates PKC delta and contributes to alterations in the differentiated phenotype and tight junction formation associated with neoplasia.