Embryonic stem (ES) cells are pluripotent cells derived from early mammalian embryos. Their immortality and rapid growth make them attractive sources for stem cell therapies; however, they produce tumours (teratomas) when transplanted, which could preclude their therapeutic usage. Why ES cells, which lack chromosomal abnormalities, possess tumour-like properties is largely unknown. Here we show that mouse ES cells specifically express a Ras-like gene, which we have named ERas. We show that human HRasp, which is a recognized pseudogene, does not contain reported base substitutions and instead encodes the human orthologue of ERas. This protein contains amino-acid residues identical to those present in active mutants of Ras and causes oncogenic transformation in NIH 3T3 cells. ERas interacts with phosphatidylinositol-3-OH kinase but not with Raf. ERas-null ES cells maintain pluripotency but show significantly reduced growth and tumorigenicity, which are rescued by expression of ERas complementary DNA or by activated phosphatidylinositol-3-OH kinase. We conclude that the transforming oncogene ERas is important in the tumour-like growth properties of ES cells.