The neu oncogene encodes a 185 kDa receptor tyrosine kinase. A single point mutation (Val664--> Glu) within the p185neu transmembrane region results in higher efficiency of receptor dimerization, constitutive activity of tyrosine kinase and cellular transformation. The oncogenic potential of this mutated form of p185neu (termed Tneu) can be inactivated by site-directed alteration of a lysine residue in the conserved catalytic domain. In this report, we have utilized the physical and functional interaction of a full-length kinase-deficient neu protein (T757) and truncated kinase-active Tneu forms to determine critical protein domains for Tneu oligomerization and the resultant biological consequences. Analysis of various truncated Tneu mutants confirmed that the transmembrane region was crucial for p185 dimerization. Receptor association facilitates intermolecular phosphorylation of kinase-deficient mutant T757 by truncated kinase-active p185 proteins, and the trans-phosphorylated kinase-deficient T757 was able to associate in vitro with proteins containing SH2 domains. Receptor-receptor interactions resulted in enhanced signal transduction potential and transformation of cell-lines co-expressing different neu-kinase forms. These studies emphasize a novel feature of protein-protein interaction and the functional significance of p185 dimerization, intermolecular phosphorylation and signaling which may result in cellular transformation.