The leucine-rich proteoglycan decorin interacts with the epidermal growth factor receptor and triggers a signaling pathway that leads to growth suppression. We find that decorin causes a functional inactivation of the oncogenic ErbB2 protein in breast carcinoma cells. Upon de novo expression of decorin, the ErbB2 protein is reduced by approximately 40%, whereas its degree of tyrosyl phosphorylation is almost completely abrogated. Both co-culture experiments or experiments with recombinant decorin demonstrate an initial induction of ErbB2 tyrosine kinase, followed by a profound and long-lasting down-regulation of its activity. This leads to growth inhibition and cytodifferentiation of mammary tumor cells and a concurrent suppression of their tumorigenic potential in vivo. These decorin-mediated effects appear to involve the activation of ErbB4, which in turn would block the phosphorylation of heterodimers containing either ErbB2 or ErbB3. These results provide an explanation for the heightened decorin levels around invasive carcinomas and suggest that decorin may function as a natural antagonist of neoplastic cells enriched in ErbB2.