Rats were exposed to either NO2 or O3 to determine whether nonciliated cells (Clara cells) could divide and differentiate into ciliated cells in the terminal bronchioles. Dividing cells were labeled with triated thymidine, visualized in the light microscopes and EM using autoradiographic techniques, and studied for up to 15 days after labeling. EM autoradiography, 1 h after injection of tritiated thymidine, showed that all labeled cells in the terminal bronchioles were nonciliated. However, 4 days after injection of tritiated thymidine, 67.8% of the labeled cells were nonciliated and 32.2% were ciliated. Light microscopic autoradiography showed that the new labeled ciliated cell population was stable for up to 15 days. Nonciliated cells apparently divide and the sister cells may form new ciliated and nonciliated cells. Nonciliated cells can probably act as progenitor cells for the terminal bronchiolar epithelium.