The association between increased DNA-methyltransferase (DNA-MTase) activity and tumor development suggest a fundamental role for this enzyme in the initiation and progression of cancer. A true functional role for DNA-MTase in the neoplastic process would be further substantiated if the target cells affected by the initiating carcinogen exhibit changes in enzyme activity. This hypothesis was addressed by examining DNA-MTase activity in alveolar type II (target) and Clara (nontarget) cells from A/J and C3H mice that exhibit high and low susceptibility, respectively, for lung tumor formation. Increased DNA-MTase activity was found only in the target alveolar type II cells of the susceptible A/J mouse and caused a marked increase in overall DNA methylation in these cells. Both DNA-MTase and DNA methylation changes were detected 7 days after carcinogen exposure and, thus, were early events in neoplastic evolution. Increased gene expression was also detected by RNA in situ hybridization in hypertrophic alveolar type II cells of carcinogen-treated A/J mice, indicating that elevated levels of expression may be a biomarker for premalignancy. Enzyme activity increased incrementally during lung cancer progression and coincided with increased expression of the DNA-MTase activity are strongly associated with neoplastic development and constitute a key step in carcinogenesis. The detection of premalignant lung disease through increased DNA-MTase expression and the possibility of blocking the deleterious effects of this change with specific inhibitors will offer new intervention strategies for lung cancer.