Repression of the tyrosine kinase activity of the cellular src protein (pp60c-src) depends on the phosphorylation of a tyrosine residue (Tyr-527) near the carboxy terminus. Tyr-527 is located 11 residues C terminal from the genetically defined end of the kinase domain (Leu-516) and is therefore in a negative regulatory region. Because the precise sequence of amino acids surrounding Tyr-527 appears to be unimportant for regulation, we hypothesized that the conformational constraints induced by phosphorylated Tyr-527 may require the correct spacing between the kinase domain (Leu-516) and Tyr-527. In this report, we show that deletions at residue 518 of two, four, or seven amino acids or insertions at this residue of two or four amino acids activated the kinase activity and thus the transforming potential of pp60c-src. As is the case for the prototype transforming variant, pp60527F, activation caused by these deletions or insertions was abolished when Tyr-416 (the autophosphorylation site) was changed to phenylalanine. In comparison with wild-type pp60c-src, the src proteins containing the alterations at residue 518 showed a lower phosphorylation state at Tyr-527 regardless of whether residue 416 was a tyrosine or a phenylalanine. Mechanisms dealing with the importance of spacing between the kinase domain and Tyr-527 are discussed.