Signaling by the epidermal growth factor (EGF) family and the neuregulin group of ligands is mediated by four ErbB receptor tyrosine kinases, that form homo- and heterodimeric complexes. Paradoxically, the neuregulin receptor ErbB-3 is devoid of catalytic activity, but its heterodimerization with other ErbBs, particularly the ligand-less ErbB-2 oncoprotein of carcinomas, reconstitutes superior mitogenic and transforming activities. To understand the underlying mechanism we constructed a chimeric EGF-receptor (ErbB-1) whose autophosphorylation C-terminal domain was replaced by the corresponding portion of ErbB-3. Consistent with the possibility that this domain recruits a relatively potent signaling pathway(s), the mitogenic signals generated by the recombinant fusion protein were superior to those generated by ErbB-1 homodimers and comparable to the proliferative activity of ErbB-2/ErbB-3 heterodimers. Upon ligand binding, the chimeric receptor recruited an ErbB-3-specific repertoire of signaling proteins, including Shc and the phosphatidylinositol 3-kinase, but excluding the ErbB-1-specific substrate, phospholipase Cgamma1. Unlike ErbB-1, which is destined to lysosomal degradation through a mechanism that includes recruitment of c-Cbl and receptor poly-ubiquitination, the C-terminal tail of ErbB-3 shunted the chimeric protein to the ErbB-3-characteristic recycling pathway. These observations attribute the mitogenic superiority of ErbB-3 to its C-terminal tail and imply that the flanking kinase domain has lost catalytic activity in order to restrain the relatively potent signaling capability of the C-terminus.