The leukemogenic membrane glycoprotein gp55, encoded by Friend spleen focus-forming virus (SFFV), induces erythroid cell proliferation through its interaction with the erythropoietin receptor (EPO-R). There are two forms of gp55 in SFFV-infected cells: an intracellular form (more than 95% of the total protein), which is localized within the endoplasmic reticulum (ER) membranes, and a cell surface form (about 3 to 5%). Because both forms of the viral proteins bind to EPO-R, it is not clear whether the viral protein induces mitogenesis intracellularly or at the cell surface. To address this question, we constructed an EPO-R mutant that contained a 6-amino-acid (DEKKMP) C-terminus ER retention signal. Biochemical and functional analyses with this mutant indicated that it was completely retained in the ER and not expressed at the cell surface. Further analysis showed that the mutant, like the wild-type EPO-R, interacted with SFFV gp55. However, this apparent intracellular interaction between the two proteins failed to induce growth factor-independent proliferation of Ba/F3 cells. Furthermore, spontaneous variants of the ER-retained EPO-R selected on the basis of their ability to induce cell proliferation when coexpressed with gp55 were exclusively expressed at the cell surface. Thus, our results support the hypothesis that the mitogenic activation of the EPO-R by gp55 requires the interaction of the two proteins at the cell surface.