In the present study we demonstrate that erbB-3 and erbB-2 cooperate in neoplastic transformation. Under conditions in which neither gene alone induced transformation, they readily transformed NIH3T3 cells if co-expressed. Furthermore, at high expression levels of ErbB2 which cause transformation, ErbB3 enhanced focus formation by one order of magnitude. Synergy required an intact ErbB2 extracellular domain and tyrosine kinase activity. Cooperation between ErbB3 and ErbB2 involved heterodimerization and increased tyrosine phosphorylation of ErbB3. Signaling by the heterodimer resulted in increased PI 3-kinase recruitment as well as quantitative and qualitative differences in substrate phosphorylation. Evidence for signaling by an active ErbB3-ErbB2 heterodimer in four mammary tumor cell lines indicated relevance of this mechanism for human neoplasia. Our detection of the NDF/heregulin transcript in NIH3T3 cells implicates an autocrine loop involving this ligand in signaling by the ErbB3-ErbB2 heterodimer in the model system, whereas heregulin-independent mechanisms likely exist for cooperative signaling by ErbB3 and ErbB2 chronically activated in some human mammary carcinomas.