A variety of eucaryotic polypeptide growth factors are synthesized as transmembrane precursors. Many of these precursors are released from plasma membranes by proteolytic cleavage and converted into soluble mature proteins. A number of studies, however, indicate that bound growth factor precursors can be biologically active, suggesting a role for these membrane-associated ligands in cell-cell communication. Secreted heregulin is a 45-kDa growth factor with homology to epidermal growth factor. This growth factor binds directly to HER-3 and HER-4 and activates heterodimeric receptor complexes composed of the type I receptor tyrosine kinases, i.e. HER-1, HER-2, HER-3, and HER-4. Heregulin was originally detected in the conditioned medium of the human breast cancer cell line MDA-MB-231 and purified based on its ability to stimulate phosphorylation of p185(HER-2/neu). In the current study, the biologic activity of plasma membrane-anchored heregulin was evaluated in human breast cells. Transmembrane heregulin binds to cells expressing p180(HER-3), induces p185(HER-2/neu) phosphorylation, and increases DNA synthesis in cells overexpressing the HER-2/neu gene product. In addition, when cells containing heregulin receptors are co-cultured with heregulin-producing cells, specific in vivo associations are observed. This study demonstrates that transmembrane heregulin is functionally active and suggest it is capable of playing a role in cell-cell communication and subsequent signal transduction in vivo.