The rat neu gene, which encodes a receptor-like protein homologous to the epidermal growth factor receptor, is frequently activated by a point mutation altering a valine residue to a glutamic acid residue in its predicted transmembrane domain. Additional point mutations have been constructed in a normal neu cDNA at and around amino acid position 664, the site of the naturally arising mutation. A mutation which causes a substitution of a glutamine residue for the normal valine at residue 664 leads to full oncogenic activation of the neu gene, but five other substitutions do not. Substituted glutamic acid residues at amino acid positions 663 or 665 do not activate the neu gene. Thus only a few specific residues at amino acid residue 664 can activate the oncogenic potential of the neu gene. Deletion of sequences of the transforming neu gene demonstrates that no more than 420 amino acids of the 1260 encoded by the gene are required for full transforming function. Mutagenesis of the transforming clone demonstrates a correlation between transforming activity and tyrosine kinase activity. These data indicate that the activating point mutation induces transformation through (or together with) the activities of the tyrosine kinase.