ErbB-4 is cleaved by alpha- and gamma-secretases to release a soluble 80-kDa intracellular domain, termed s80, which translocates to the nucleus. s80 is present in the nucleus of normal and cancerous mammary cells and is predicted to have a role in cell differentiation. To further investigate the mechanism by which s80 may mediate differentiation, we tested whether s80 regulates Eto2, a transcriptional corepressor that is involved in erythrocyte differentiation and is also implicated in human breast cancer. Here we show that ligand binding to ErbB-4 causes s80 translocation to the nucleus, where it colocalizes and interacts with Eto2. Expression of s80 blocks Eto2-mediated transcriptional repression of a heterologous promoter. This effect on Eto2 does not require s80 kinase activity and is mediated by the carboxyl-terminal region of s80. Although other cell surface receptors regulate transcription by activating signal transduction cascades, these data present a novel mechanism of corepressor regulation and suggest a role for Eto2 in ErbB-4-dependent differentiation.