During development, stem and progenitor cells gradually commit to differentiation pathways. Cell fate decisions are regulated by differentiation factors, which activate transcription programmes that specify lineage and differentiation status. Among these factors, the transforming growth factor (TGF)-beta family is important in both lineage selection and progression of differentiation of most, if not all, cell and tissue types. There is now increasing evidence that TGF-beta family proteins have the ability to redirect the differentiation of cells that either have fully differentiated or have engaged in differentiation along a particular lineage, and can thereby elicit 'transdifferentiation'. This capacity for cellular plasticity is critical for normal embryonic development, but when recapitulated in the adult it can give rise to, or contribute to, a variety of diseases. This is illustrated by the ability of TGF-beta family members to redirect epithelial cells into mesenchymal differentiation and to cause switching of mesenchymal cells from one lineage to another. Hence, various pathologies in adults may be considered diseases of abnormal development and differentiation.