We generated mice that carry copies of a dormant transgene encoding the SV40 tumor antigens. The transgenes are specifically targeted to the lens and contain features that render their expression dependent on the action of Cre, a site-specific bacteriophage DNA recombinase. Timing of oncogene activation was controlled by making Cre available either prior to, or coincident with, the onset of primary fiber differentiation in the embryonic lens vesicle. Early expression of Cre resulted in oncogene activation in undifferentiated lens epithelial cells that rapidly proliferated inside the lens capsule. By contrast, when Cre accumulation was delayed to coincide with the onset of primary lens fiber differentiation, SV40 oncogenes were activated in cells that had begun to elongate and to accumulate lens-specific crystallins. During subsequent proliferation inside the lens capsule, transformed progeny cells maintained the profile of fiber differentiation that their parent cells had acquired at the time of oncogenic conversion. Developing lens tumors were confined within the capsule of the embryonic lens. However, if the capsule was perforated in an embryonic eye in organ culture, cells rapidly grew out while still maintaining features of differentiation. Our findings show that the differentiated state of the primary target cells is an important parameter of subsequent lens oncogenesis, and that an intact lens capsule can restrict invasive neoplastic growth.