The v-ErbB retroviral oncogene is a transduced, mutated copy of the avian EGF receptor gene, and its expression is sufficient to induce tumor formation in vivo. The structural alterations that release the oncogenic potential of the v-ErbB oncogene are similar to EGFR gene mutations described in human tumors. Thus, the study of v-ErbB tumor biology offers a useful model through which we can gain insight into the mechanism of EGFR-induced malignancies. Despite years of study, however, questions remain regarding the domains of v-ErbB required for oncogenicity. We sought to clarify the role of the transmembrane domain of v-ErbB during transformation using S3-v-ErbB, an acutely transforming retroviral oncogene isolated from avian sarcomas. Infection of primary fibroblasts with a retroviral vector containing S3-v-ErbB results in the formation of a transformation-associated phosphoprotein signaling complex, soft agar colony formation, and the rapid induction of highly vascularized sarcomas in vivo. To address contribution of the transmembrane domain of S3-v-ErbB during these processes, we constructed a mutant version of this oncogene with a precise deletion in this domain. Specifically, the S3-v-ErbB-TM- mutant was created through an in-frame deletion of the entire transmembrane domain. Primary fibroblasts expressing this S3-v-ErbB-TM- mutant fail to form a characteristic transformation-associated phosphoprotein complex and do not grow in an anchorage-independent manner. In addition, day-old chicks injected with a helper-independent retrovirus expressing the S3-v-ErbB-TM- mutant exhibit only limited tumor formation in vivo. These results demonstrate that the transmembrane domain and, consequently membrane localization, are essential for S3-v-ErbB-mediated transformation.