Background: The development of urothelial malignancy is not solely a consequence of loss of proliferation constraints but also involves loss of cellular differentiation, defined histopathologically as grade. Although tumour grade is an independent prognostic marker for urothelial carcinoma (UC), the molecular events underpinning the loss of urothelial differentiation are poorly understood. Objective: To examine the effect of gene alterations implicated in UC development on the ability of human urothelial cells to undergo molecular differentiation and form a functional urothelial barrier. Design, setting, and participants: Laboratory study. Intervention: Normal human urothelial (NHU) cell cultures were transduced with recombinant retroviruses to produce stable sublines overexpressing wild-type or oncogenic mutated fibroblast growth factor receptor 3 or human telomerase reverse transcriptase (hTERT). Previously generated NHU sublines carrying dominant-negative CDK4 and p53 mutant genes or immortalised with the human papillomavirus 16 E6 oncoprotein were included. Measurements: The activity of introduced transgenes was demonstrated by comparing phenotypes of transgene-expressing and isogenic control NHU cells. Modified and control sublines were compared for changes in generational potential (life span) and capacity to respond to differentiation-inducing signals by transcript expression of uroplakins 2 and 3. The ability to form a barrier epithelium was assessed by measuring the transepithelial electrical resistance. Results and limitations: By contrast to tumour suppressor loss of function or oncogene overactivation, hTERT overexpression alone led to life span extension and immortalisation. The hTERT immortalised cells carried no gross genomic alterations but became progressively insensitive to differentiation signals and lost the ability to form an epithelial barrier. Further characterisation of hTERT cells revealed a downregulation of p16 cyclin-dependent kinase inhibitor expression and loss of responsiveness to peroxisome proliferator-activated receptor γ, providing mechanistic explanations for the subjugation of senescence constraints and the abrogation of differentiation capability, respectively. Although immortalised urothelial cell lines without karyotypic aberrations may be generated, such cell lines are compromised in terms of differentiation and functional capacity. Conclusions: Overexpression of hTERT promotes development of an immortalised differentiation-insensitive urothelial cell phenotype. Although such cells offer a useful insight into the grade/stage paradigm of UC, they have limited value for investigating normal urothelial cell/tissue biology and physiology.