The role of tyrosine phosphorylation in the regulation of tyrosine protein kinase activity was investigated using site-directed mutagenesis to alter the structure and environment of the three tyrosine residues present in the C terminus of avian pp60c-src. Mutations that change Tyr 527 to Phe or Ser activate in vivo tyrosine protein kinase activity and induce cellular transformation of chicken cells in culture. In contrast, alterations of tyrosine residues present at positions 511 or 519 in c-src do not induce transformation or in vivo tyrosine protein kinase activity. Amber mutations, which alter the structure of the pp60c-src C terminus by inducing premature termination of the c-src protein at either residue 518 or 523 also induce morphological transformation and increase in vivo tyrosine phosphorylation, whereas removal of the last four residues of c-src by chain termination at residue 530 does not alter the kinase activity or the biological activity of the resultant c-src protein. We conclude from these studies that C-terminal alterations which either remove or replace Tyr 527 serve to activate the c-src protein resulting in cellular transformation and increased in vivo tyrosine protein kinase activity.