The proto-oncogene Wnt-1 plays an essential role in fetal brain development and causes hyperplasia and tumorigenesis when activated ectopically in the mouse mammary gland. When expressed in certain mammary epithelial cell lines, the gene causes morphological transformation and excess cell proliferation at confluence. Like other members of the mammalian Wnt family, Wnt-1 encodes secretory glycoproteins which have been detected in association with the extracellular matrix or cell surface but which have not previously been found in a soluble or biologically active form. We show here that conditioned medium harvested from a mammary cell line expressing Wnt-1 contains soluble Wnt-1 protein and induces mitogenesis and transformation of mammary target cells. By immunodepletion of medium containing epitope-tagged Wnt-1, we show that at least 60% of this activity is specifically dependent on Wnt-1 protein. These results provide the first demonstration that a mammalian Wnt protein can act as a diffusible extracellular signaling factor.