The epidermal growth factor (EGF) family of peptides signals through the erbB family of receptor tyrosine kinases and plays important roles in development and tumorigenesis. Both EGF and transforming growth factor (TGF)-alpha only bind to erbB1 and activate it. The precursor of EGF is distinct from that of TGF-alpha in having eight additional EGF-like repeats. We have recently shown that the EGF precursor without these repeats is biologically active and leads to hypospermatogenesis in transgenic mice. Here we present evidence that the growth of transgenic mice widely expressing this engineered EGF precursor is also stunted. These mice were consistently born at half the normal weight and reached almost 80% of normal weight at adulthood. The mechanism involved a reduction of serum insulin-like growth factor-binding protein-3. Chondrocyte development in the growth plate was affected, and osteoblasts accumulated in the endosteum and periosteum. Besides these novel findings on the in vivo effects of EGF on bone development, we observed no sign of tumor formation in our transgenic animals. In contrast to previous reports on TGF-alpha transgenic mice, we show that the biological functions of EGF and TGF-alpha are clearly distinct.