Loss of histotypic organization of epithelial cells is a common feature in normal development as well as in the invasion of carcinomas. Here we show that the v-src oncogene is a potent effector of epithelial differentiation and invasiveness. MDCK epithelial cells transformed with a temperature-sensitive mutant of v-src exhibit a strictly epithelial phenotype at the nonpermissive temperature for pp60v-src activity (40.5 degrees C) but rapidly loose cell-to-cell contacts and acquire a fibroblast-like morphology after culture at the permissive temperature (35 degrees C). Furthermore, the invasiveness of the cells into collagen gels or into chick heart fragments was increased at the permissive temperature. The profound effects of v-src on intercellular adhesion were not linked to changes in the levels of expression of the epithelial cell adhesion molecule E-cadherin. Rather, we observed an increase in tyrosine phosphorylation of E-cadherin and, in particular, of the associated protein beta-catenin. These results suggest a mechanism by which v-src counteracts junctional assembly and thereby promotes invasiveness and dedifferentiation of epithelial cells through phosphorylation of the E-cadherin/catenin complex.