The use of the mouse for carcinogenesis bioassays has raised questions regarding the cell of origin of lung tumors. Since a feature of chronic lung injury from aromatic hydrocarbons is an apparent alteration in target cell susceptibility, the present study was designed to test the feasibility of using microdissected pulmonary airways to evaluate the metabolism and cytotoxic response of one of the potential targets of pulmonary carcinogens, the bronchiolar Clara cell. Airways were microdissected from mouse lungs that had been filled by injection of agarose (1%) into the trachea. Ultrastructural integrity of the explants has been maintained for up to 8 h in culture. The cytotoxic response of bronchiolar epithelium in explants incubated with naphthalene (0.5 mM) was identical to the vacuolation and exfoliation observed in bronchioles of mice 24 h after intraperitoneal administration of naphthalene (100 or 300 mg/kg). Pre-incubation of the explants with piperonyl butoxide, a cytochrome P-450 monooxygenase inhibitor, prevented naphthalene-induced cytotoxicity. Naphthalene monooxygenase activity was easily measurable in all levels of airway, including trachea, lobar bronchi, major and minor daughter pathways, and distal bronchioles. No metabolism was detected in lung parenchyma or large vessels. Dihydrodiol and a glutathione adduct derived from 1R, 2S-naphthalene oxide were the sole metabolites detected by HPLC in incubations of airway explants. Formation of a single diastereomeric glutathione conjugate indicated that the metabolic epoxidation of naphthalene was highly stereoselective. Glutathione S-transferase activity was measured in all compartments, with the highest activities in trachea and lowest in distal bronchiole and pulmonary vein. Explants maintained pools of reduced glutathione for up to 4 h in culture. We conclude that microdissected airways have excellent potential for: (1) defining the capability of bronchiolar epithelium to catalyze xenobiotic biotransformation, (2) comparing activity in target and nontarget lung compartments as a means of identifying specific metabolic pathways associated with the cytotoxic response, and (3) use with a variety of species, including nonhuman primates and humans, as a means of providing appropriate data for extrapolation of effects in the intact animal to the human, where bioassay is not possible.