The 130 kd transforming protein of Fujinami sarcoma virus (FSV P130gag -fps) possesses a tyrosine-specific protein kinase activity and is itself phosphorylated at several tyrosine and serine residues in FSV-transformed cells. We have used oligonucleotide-directed mutagenesis of the FSV genome to change the TAT codon for tyrosine (1073), the major site of P130gag -fps phosphorylation, to a TTT codon for phenylalanine that cannot be phosphorylated. This mutant FSV induces the transformation of rat-2 cells but with a long latent period as compared with wild-type FSV. The P130gag -fps protein encoded by the mutant retains the ability to phosphorylate tyrosine, but is five times less active as a kinase in vitro than wild-type FSV P130gag -fps. These data indicate that tyrosine phosphorylation stimulates the biochemical and biological activities of FSV P130gag -fps, and they set a precedent for the ability of this amino acid modification to modulate protein function.