TGF alpha is one member of a family of soluble growth factors that are derived from integral-membrane precursors. The mature form of TGF alpha is released from its transmembrane precursor (proTGF alpha) by a protease that, in many tumor cells, is inefficient or limiting. We have previously established that, in the absence of processing, membrane-anchored proTGF alpha is biologically active and can interact with the EGF receptor on adjacent cells, thereby inducing the receptor's intrinsic tyrosine kinase activity. We further showed that this interaction leads to immediate downstream signal transduction as evidenced by Ca2+ mobilization. To extend these observations, and to investigate its transforming potential, we infected normal rat kidney (NRK) cells with retroviral expression vectors that encode mutated forms of proTGF alpha containing amino acid substitutions at the proteolytic cleavage sites. NRK cells harboring these mutant constructs do not secrete mature growth factor, but do express biologically active proTGF alpha on the cell surface as shown by their ability to induce the autophosphorylation of EGF receptor on neighboring A431 cells in co-culture. Expression of the mutant proTGF alpha molecules promoted the anchorage-independent growth of NRK cells in soft agar, and caused them to be tumorigenic when injected into nude mice. These results demonstrate that an interaction between EGF receptor and the integral membrane precursor to TGF alpha can provide a mitogenic stimulus that leads to transformation. They further suggest that the accumulation of proTGF alpha on the surface of some transformed cells has physiological relevance.