Neu differentiation factor (NDF, or heregulin) and epidermal growth factor (EGF) are structurally related proteins that bind to distinct members of the ErbB family of receptor tyrosine kinases. Here we show that NDF inhibits EGF binding in a cell type-specific manner. The inhibitory effect is distinct from previously characterized mechanisms that involve protein kinase C and receptor internalization because it occurred at 4 degrees C and displayed reversibility. The extent of inhibition correlated with both receptor saturation and affinity of different NDF isoforms, and it was abolished upon overexpression of either EGF receptor or ErbB-2. Binding kinetics and equilibrium analyses indicated that NDF reduced the affinity, rather than the number, of EGF receptors, through an acceleration of the rate of ligand dissociation and deceleration of the association rate. On the basis of co-immunoprecipitation of EGF and NDF receptors, we attribute the inhibitory effect to the formation of receptor heterodimers. According to this model, EGF binding to NDF-occupied heterodimers is partially blocked. This model of negative trans-regulation within the ErbB family is relevant to other subgroups of receptor tyrosine kinases and may have physiological implications.