Fibroblast growth factor 3 (FGF3) was first identified as the product of a cellular oncogene activated by mouse mammary tumour virus but its normal role appears to be in the developing embryo. To gain further insights into its function, we have isolated sequences encoding the FGF3 homologue in Xenopus laevis, XFGF3. COS-1 cells transfected with XFGF3 cDNA express a 31 kDa product, p31, generated by signal peptide cleavage and Asn-linked glycosylation at the single consensus site. This product is secreted and becomes associated with the cell surface and extracellular matrix. Proteolytic cleavage of p31 in the extracellular compartment results in an amino-terminally truncated product, p27, that is also glycosylated. Both p31 and p27 bind quantitatively to heparin-Sepharose and can be displaced from the cell surface and extracellular matrix by soluble heparin. Conditioned medium containing these two proteins is capable of inducing transient morphological transformation of NIH3T3 cells and of stimulating DNA synthesis in quiescent C57MG and BALB/MK cells which express different isoforms of FGF receptors 1 and 2. Since XFGF3 behaves very differently from its mouse counterpart, we constructed chimeras in which amino-terminal sequences from XFGF3 were fused with carboxy-terminal sequences from mouse FGF3. Increasing the contribution from mouse FGF3 led to a more restricted host range for the chimeric ligand.