The SAK cell line, derived from a spontaneous thymic lymphoma in an AKR mouse, is resistant to lysis by glucocorticoids in spite of the presence of functional glucocorticoid receptor. Receptor function was determined by hormone binding analyses, as well as characterization of hormonal effects on cell growth and on the accumulation of murine leukemia virus and metallothionein mRNAs. SAK cells were fused with a receptor-defective (and therefore resistant) variant of a well-characterized murine thymoma line, W7. The resulting hybrids are glucocorticoid sensitive, demonstrating complementation of the receptor defect in W7 cells by the functional glucocorticoid receptor of SAK. This fusion shows that SAK cells are resistant to the hormone due to the absence of another function designated "I" for lysis. SAK cells were also fused with glucocorticoid-sensitive W7 cells (containing wild-type receptor), generating glucocorticoid-sensitive hybrids, which demonstrate that the dexamethasone-resistant phenotype of the SAK cells is recessive. Resistant derivatives of this hybrid were found which still contain the full amount of receptor. Chromosome analysis revealed that, on the average, the resistant derivatives had lost two chromosomes, suggesting segregation of chromosomes carrying genetic material necessary for the "lysis" function. The drug 5-azacytidine (a known inhibitor of DNA methylation) has been shown to cause heritable changes in gene expression. Treatment of SAK cells with 5-azacytidine generated glucocorticoid-sensitive clones at high frequency, suggesting that the gene(s) involved in the "lysis" function are intact and have been inactivated through a process such as differentiation.