Spontaneous differentiation of normal diploid osteoblasts in culture is accompanied by increased cyclin E associated kinase activity on (1) the retinoblastoma susceptibility protein pRB, (2) the p107 RB related protein, and (3) two endogenous cyclin E-associated substrates of 78 and 105 kD. Activity of the differentiation-related cyclin E complexes (diff.ECx) is not recovered in cdc2 or cdk2 immunoprecipitates. Phosphorylation of both the 105 kD endogenous substrate and the p107 exogenous substrate is sensitive to inhibitory activity (diff.ECx-i) present in proliferating osteoblasts. This inhibitory activity is readily recruited by the cyclin E complexes of differentiated osteoblasts but is not found in cyclin E immunoprecipitates of the proliferating cells themselves. Strong inhibitory activity on diff.ECx kinase activity is excerted by proliferating ROS 17/2.8 osteosarcoma cells. However, unlike the normal diploid cells, the diff.ECx-i activity of proliferating ROS 17/2.8 cells is recovered by cyclin E immunoprecipitation. The cyclin-dependent kinase inhibitor p21CIP1/WAF1 inhibits diff.ECx kinase activity. Thus, our results suggest the existence of a unique regulatory system, possibly involving p21CIP1/WAF1, in which inhibitory activity residing in proliferating cells is preferentially targeted towards differentiation-related cyclin E-associated kinase activity.