Neu differentiation factor (NDF), a member of the neuregulin family of ligands of erbB receptors, induces both differentiative and mitogenic effects on cultured human mammary epithelial cells. Since members of the epidermal growth factor receptor family, including Neu/erbB2, have been implicated in mammary carcinoma, we wished to know whether a potential ligand of this family, NDF, could induce such effects in the mammary gland in vivo. We therefore targeted expression of NDF to the mammary gland of transgenic mice using the mouse mammary tumor virus (MMTV) promoter in a fusion construct. There was a clear, but subtle effect on development of the adult virgin gland of female transgenic animals. Terminal end bud structures (TEBs), which normally disappear from the mammary gland at the age of approximately 8 weeks in wild type mice, persist in glands of virgin MMTV-NDF transgenic females, suggesting that NDF inhibits signals that normally lead to the terminal differentiation of these structures. Further, female mice, bred continuously to maximize expression of the transgene in the mammary gland, develop mammary adenocarcinomas at a median age of 12 months. Since these tumors arise in a solitary fashion, we infer that NDF is necessary, but not sufficient for their formation. In order to explore the signal transduction pathways potentially activated by NDF, we examined expression of the receptors erbB2, erbB3 and erbB4 in mammary epithelial cells established from an NDF-induced tumor. All three receptors were expressed, though only the erbB3 receptor was phosphorylated, suggesting that overexpression of NDF might operate through this receptor. Additionally, about 50% of MMTV-NDF transgenic mice developed Harderian (lachrymal) gland hyperplasia, a benign tumor that does not progress to frank malignancy.