Growth factor receptors are typically activated by the binding of soluble ligands to the extracellular domain of the receptor, but certain viral transmembrane proteins can induce growth factor receptor activation by binding to the receptor transmembrane domain. For example, homodimers of the transmembrane 44-amino acid bovine papillomavirus E5 protein bind the transmembrane region of the PDGF beta receptor tyrosine kinase, causing receptor dimerization, phosphorylation, and cell transformation. To determine whether it is possible to select novel biologically active transmembrane proteins that can activate growth factor receptors, we constructed and identified small proteins with random hydrophobic transmembrane domains that can bind and activate the PDGF beta receptor. Remarkably, cell transformation was induced by approximately 10% of the clones in a library in which 15 transmembrane amino acid residues of the E5 protein were replaced with random hydrophobic sequences. The transformation-competent transmembrane proteins formed dimers and stably bound and activated the PDGF beta receptor. Genetic studies demonstrated that the biological activity of the transformation-competent proteins depended on specific interactions with the transmembrane domain of the PDGF beta receptor. A consensus sequence distinct from the wild-type E5 sequence was identified that restored transforming activity to a non-transforming poly-leucine transmembrane sequence, indicating that divergent transmembrane sequence motifs can activate the PDGF beta receptor. Molecular modeling suggested that diverse transforming sequences shared similar protein structure, including the same homodimer interface as the wild-type E5 protein. These experiments have identified novel proteins with transmembrane sequences distinct from the E5 protein that can activate the PDGF beta receptor and transform cells. More generally, this approach may allow the creation and identification of small proteins that modulate the activity of a variety of cellular transmembrane proteins.