TGF-alpha-PE40 is a hybrid protein composed of transforming growth factor-alpha (TGF-alpha) fused to a 40,000-dalton segment of Pseudomonas exotoxin A (PE40). This hybrid protein possesses the receptor-binding activity of TGF-alpha and the cell-killing properties of PE40. These properties enable TGF-alpha-PE40 to bind to and kill tumor cells that possess epidermal growth factor (EGF) receptors. Unexpectedly, TGF-alpha-PE40 binds approximately 100-fold less effectively to EGF receptors than does native TGF-alpha (receptor-binding inhibition IC50 = 540 and 5.5 nM, respectively). To understand the factors governing receptor binding, deletions and site-specific substitutions were introduced into the PE40 domain of TGF-alpha-PE40. Removal of the N-terminal 59 or 130 amino acids from the PE40 domain of TGF-alpha-PE40 improved receptor binding (IC50 = 340 and 180 nM, respectively) but decreased cell-killing activity. Substitution of alanines for cysteines at positions 265 and 287 within the PE40 domain dramatically improved receptor binding (IC50 = 37 nM) but also decreased cell-killing activity. Similar substitutions of alanines for cysteines at positions 372 and 379 within the PE40 domain did not significantly affect receptor-binding or cell-killing activities. These studies indicate that the PE40 domain of TGF-alpha-PE40 interferes with EGF receptor binding. The cysteine residues at positions 265 and 287 of PE40 are responsible for a major part of this interference.