We have demonstrated that in Chinese hamster ovary (CHO) cells, N6,O2'-dibutyryl adenosine cyclic 3':5'-monophosphate (dibutyryl cyclic AMP) has a remarkable morphogenetic effect in converting cells of a compact, epithelial-like morphology into a spindle-shaped, fibroblast-like form. Homogenates of CHO cells were found to contain two adenosine cyclic 3':5'-monophosphate (cyclic AMP) phosphodiesterase (EC 3.1.4.c) activities, which differ in apparent Km with respect to their substrate, cyclic AMP. These were designated cyclic AMP phosphodiesterase I, with a low Km of 2 to 5 muM and cyclic AMP phosphodiesterase II, with a high Km of 1 to 3 mM. Cyclic AMP phosphodiesterase I was competitively inhibited by N6-monobutyryl and dibutyryl cyclic AMP, with apparent Ki values of 40 to 60 muM and 0.25 to 0.35 mM, respectively. Experimental evidence demonstrates that the effect of exogenous dibutyryl cyclic AMP on cell morphology is a result of an increase in the endogenous level of cyclic AMP. This increase appears to be due largely to the inhibitory action of intracellular N6-monobutyryl cyclic AMP on cyclic AMP phosphodiesterase I, which results in a decreased rate of degradation of intracellular cyclic AMP.