The neu/HER-2 proto-oncogene (also called erbB-2) encodes a transmembrane glycoprotein related to the epidermal growth factor receptor. We have purified to homogeneity a 44 kd glycoprotein from the medium of ras-transformed cells that stimulates phosphorylation of the Neu protein and retains activity after elution from the polyacrylamide gel. The protein is active at picomolar concentrations and displays a novel N-terminal sequence. Cross-linking experiments with radiolabeled p44 result in specific labeling of Neu, indicating that p44 is a ligand for Neu or a related receptor. The purified protein induces phenotypic differentiation of cultured human breast cancer cells, including altered morphology and synthesis of milk components. This is accompanied by an increase in nuclear area, inhibition of cell growth (probably by cell cycle arrest at the late S or the G2/M phases), and induction of DNA polyploidy. We propose the name Neu differentiation factor (NDF) for p44.