We have introduced two loss-of-function point mutations from highly conserved regions of the src homology 3 (SH3) domains of the Caenorhabditis elegans sem-5 gene into the SH3 domain of the murine type IV c-abl tyrosine kinase proto-oncogene. One of the mutations, P131L, activated abl to transform fibroblasts while the other, G128R, did not. When combined with independent activating mutations in the c-abl kinase domain or NH2-terminus, the G128R mutation blocked transformation by the double mutant, suggesting that the G128R mutant was unable to transform cells for trivial reasons. The c-Abl G128R mutant, like wild type c-Abl protein, was localized to the nucleus and actin cytoskeleton and had normal tyrosine kinase activity in vitro, while the transforming c-Abl P131L protein was localized exclusively to the cytoplasm and exhibited decreased in vitro kinase activity. By real-time biospecific interaction analysis, the wild type Abl SH3 domain bound to two proteins containing proline-rich motifs with dissociation constants of 0.2 and 17 microM; the G128R mutant bound with 50-fold lower affinity, and no binding was detected by the P131L mutant. Both mutations completely abolished binding of the Abl SH3 domain to proline-rich target proteins in a filter-binding assay. These results suggest that the transforming activity of Abl is regulated in vivo by an inhibitor protein which associates with the SH3 domain via a proline-rich sequence.