Identification of a mutant epidermal growth factor (EGF) receptor that does not undergo downregulation has provided a genetic probe to investigate the role of internalization in ligand-induced mitogenesis. Contact-inhibited cells expressing this internalization-defective receptor exhibited a normal mitogenic response at significantly lower ligand concentrations than did cells expressing wild-type receptors. A transformed phenotype and anchorage-independent growth were observed at ligand concentrations that failed to elicit these responses in cells expressing wild-type receptors. These findings imply that activation of the protein tyrosine kinase activity at the cell membrane is sufficient for the growth-enhancing effects of EGF. Thus, downregulation can serve as an attenuation mechanism, without which transformation ensues.