The processes by which the kinase inactive receptor ErbB-3 transmits the signals of its ligand, heregulin (HRG), are incompletely understood. We used a yeast two-hybrid system to identify ErbB-3 interacting proteins that may participate in HRG signal transduction. We found that the protein p23, the human homolog of the mouse transplantation antigen P198, interacted with the cytoplasmic domain of ErbB-3 in the yeast two-hybrid system. P23 bound the 26-amino-acid juxtamembrane domain of ErbB-3 in vitro. The N-terminal end of p23 contained the ErbB-3 interacting region. P23 also bound to ErbB-3 in a human breast cell line. Two p23 mRNA transcripts were detected in normal human epithelial tissues including those of the heart, placenta, lung, brain, kidney, pancreas, skeletal muscle, and liver. These same transcripts were also detected in ErbB-3 overexpressing human tumor cell lines derived from breast and lung carcinomas, and a sarcoma. Transfection of p23 resulted in suppression of colony formation of the ErbB-3 overexpressing human breast cancer cell line, AU565, a decreased rate of cell growth, and induction of differentiation. The interaction of ErbB3 and p23 may play a role in regulation of proliferation of ErbB-3 expressing cells.