The neu proto-oncogene encodes a receptor tyrosine kinase (RTK). The oncogenic allele neu* (p185*) bears a glutamic acid for valine substitution at position 664 within the predicted transmembrane domain. We have used this mutant to explore the role of the transmembrane domain in signal transduction by RTKs. Analysis of a panel of neu* proteins with second-site mutations in the transmembrane domain revealed a strong correlation of dimerization with transformation. Both dimerization and transformation are dependent on a domain formed by the amino acids Val663-Glu664-Gly665 (VEG). However, movement of the VEG elsewhere within the transmembrane domain promoted weak dimerization but not transformation. Epidermal growth factor receptor (EGFR)/neu chimeras were used to determine if mutations that disrupt activation by Glu664 affect hormone-regulated signal transduction as well. These mutations (of Val663 and Gly665) did not affect regulation by EGF. Introduction of the known transmembrane dimerization domain from Glycophorin A (GpA) stimulated dimerization, but was not sufficient for transformation. These results indicate that dimerization is necessary but not sufficient for transforming activity. The homologous wild-type domain, VVG, is not required for hormone-regulated signaling.