c-Abl tyrosine kinase is under rigorous control because of an unknown cellular inhibitor that maintains c-Abl in a relatively inactive state. Because SH2 domains are positive regulators of the nonreceptor tyrosine kinases, we tested whether this putative inhibitor would bind to an Abl SH2 protein construct and thus activate the c-Abl tyrosine kinase. Expression of a Mr 10,000 Abl SH2 protein in COS-1 and Rat-1 cells activated the tyrosine kinase activity of p145 ABL and induced both morphological transformation and foci formation in Rat-1 cells. Importantly, the R to L mutant of the FLVRES sequence of the Abl SH2 protein also activated the c-Abl tyrosine kinase and induced oncogenic transformation. Addition of the Abl kinase inhibitor STI-571 to ABL SH2-transformed Rat-1 cells inhibited tyrosine phosphorylation of p145 ABL. Overexpression of Bcr has been shown to inhibit the Bcr-Abl oncoprotein, and the endogenous Bcr protein forms a complex with c-Abl in hematopoietic cells and insect cells. Therefore, we determined whether Bcr is the putative c-Abl inhibitor that interacts with the Mr 10,000 Abl SH2 protein. Bcr expression in Rat-1 cells transformed by the Mr 10,000 Abl SH2 protein reduced the activated c-Abl tyrosine kinase activity to near normal levels and reversed the oncogenic effects (morphology changes and foci formation) seen in the Abl SH2-treated cells. We additionally demonstrated that Bcr and the Mr 10,000 Abl SH2 protein are present in a complex. We conclude from these studies that Bcr is a major tyrosine kinase inhibitor of cytoplasmic c-Abl and that procedures that sequester Bcr will release the c-Abl protein from the Bcr/c-Abl complex, which leads to c-Abl oncogenic activation.