Avian c-erbB is activated to a leukemia oncogene following truncation of its amino-terminal, ligand-binding domain by retroviral insertion. The insertionally activated transcripts encode protein products that have constitutive tyrosine kinase activity and that can induce erythro-leukemia but not sarcomas. We have found that a single point mutation within the ATP-binding pocket of the tyrosine kinase domain in this truncated molecule can increase the ability of this oncogene to induce anchorage-independent growth of fibroblasts in vitro and fibrosarcoma formation in vivo. Associated with this increased transforming potential is a corresponding increase in the kinase activity of the mutant erbB protein product. The mutation, which converts a valine to isoleucine at position 157 of the insertionally activated c-erbB product, is at a residue that is highly conserved within the protein kinase family. To our knowledge, this is the first demonstration of a point mutation in the ATP-binding pocket that activates a tyrosine kinase.