To examine how amino acid sequences outside of the catalytic domain of pp60c-src influence the functional activity of this protein, we have introduced deletion mutations within the amino-terminal half of pp60c-src. These mutations caused distinct changes in the biochemical properties of the c-src gene products and in the properties of cells infected with retroviruses carrying these mutant c-src genes. Cells expressing the c-srcNX protein, which contains a deletion of amino acids 15 to 89, displayed a refractile, spindle-shaped morphology, formed intermediate-sized, tightly packed colonies in soft agar, and contained elevated levels of cellular phosphotyrosine-containing proteins. Thus, deletion of amino acids 15 to 89 can activate the kinase activity and transforming potential of the c-src gene product. Deletion of amino acids 112 to 225, however, did not increase the kinase activity or transforming ability of pp60c-src; indeed, deletion of these sequences in c-srcHP suppressed phenotypic alterations induced by pp60c-src. Cells expressing the c-srcNP or c-srcBS gene products (containing deletions of amino acids 15 to 225 and 55 to 169, respectively) displayed a fusiform, refractile morphology and formed diffuse colonies in soft agar; the mutant proteins displayed an increased in vitro protein-tyrosine kinase activity. However, only a few cellular proteins contained elevated levels of phosphotyrosine in vivo. Thus, deletions downstream of amino acid 89 severely restricted the ability of c-src to phosphorylate cellular substrates in vivo without affecting the intrinsic tyrosine kinase activity of the c-src gene product. These results suggest the existence of at least two modulatory regions within the amino-terminal half of pp60c-src that are important for the regulation of tyrosine kinase activity and for the interaction of pp60c-src with cellular substrates.