Ligand-induced dimerization of growth factor receptors is crucial for stimulation of their intrinsic protein tyrosine kinase activity promoting receptor autophosphorylation by an intermolecular mechanism. Moreover, the suppressive and negative dominant action of defective epidermal growth factor receptor (EGFR) was shown to be caused by formation of inactive heterodimers with normal EGFR leading to diminished biological signaling. In this report we explore the structural requirements and functional significance of heterodimerization between EGFR and HER2. HER2 (also called c-erbB-2 or neu) is a member of the EGFR family whose natural ligand is still unknown. We show that in response to EGF, wild type EGFR and various EGFR mutants were able to undergo heterodimerization with HER2. Addition of EGF to transfected cells co-expressing HER2 with a kinase negative point mutant of EGFR (K721A) stimulated heterodimer formation, tyrosine phosphorylation of K721A and HER2, and tyrosine phosphorylation of one of their known substrates, phospholipase C gamma. However, the binding of EGF to transfected cells co-expressing HER2 together with another EGFR mutant CD533 (a deletion mutant lacking most of the cytoplasmic domain of EGFR) caused heterodimerization and inhibition of tyrosine kinase activity. It appears therefore that EGF-induced heterodimerization of EGFR and HER2 can promote either stimulatory or inhibitory influences on kinase activity. We propose that the nature of receptor interactions on the cell surface can either activate or inhibit the initiation of growth factor-controlled cellular signaling.