We reported previously that an N-terminally truncated insulinlike growth factor I receptor (IGFR) fused to avian sarcoma virus UR2 gag p19 had a greater transforming potential than did the native IGFR, but it failed to cause tumors in vivo. To investigate whether the 36 amino acids (aa) of the IGFR extracellular (EC) sequence in the gag-IGFR fusion protein encoded by the retrovirus UIGFR have a modulatory effect on the biological and biochemical properties of the protein, four mutants, NM1, NM2, NM3, and NM4 of the EC sequence were constructed. NM1 lacks the entire 36 aa residues; NM2 lacks the N-terminal 16 aa residues (aa 870 to 885), including two potential N-linked glycosylation sites of the EC sequence; NM3 contains a deletion of the C-terminal 20 aa residues (aa 886 to 905) of the EC sequence; and NM4 contains N-to-Q substitutions at both N-linked glycosylation sites. NM1 was the strongest of the four mutants in promoting anchorage-independent growth of transfected chicken embryo fibroblasts, while NM2 and NM4 had weaker transforming potential than did the original UIGFR virus. Only NM1 and NM3 were able to induce sarcomas in chickens. The four NM mutant-transformed cells expressed the expected proteins with comparable steady-state levels. The in vitro tyrosine kinase activity of P53NM1 was about fourfold higher than that of the parental P57-75UIGFR, whereas NM2 and NM4 proteins exhibited four- to fivefold-lower kinase activities. Despite lacking the IGFR EC sequence, P53NM1 formed covalent dimers similar to those formed by the parental P57-75UIGFR. Increased phosphatidylinositol (PI) 3-kinase activity was found to be associated with the mutant IGFR proteins. Among NM4 proteins. Elevated tyrosine phosphorylation of cellular proteins of 35, 120, 140, 160, and 170 kDa was detected in all mutant IGFR-transformed cells. We conclude that the EC 36-aa sequence of IGFR in the gag-IGFR fusion protein exerts intricate modulatory effects on the protein's transforming and tumorigenic potential. The 20 aa residues immediately upstream of the transmembrane domain have an inhibitory effect on the tumorigenic potential of gag-IGFR, whereas N-linked glycosylation within the EC sequence appears to have a positive effect on the transforming potential of UIGFR. Increased in vitro kinase activity and, to a lesser extent, in vivo tyrosine phosphorylation as well as the elevated association of PI 3-kinase activity with IGFR proteins seem to be correlated with the transforming potential of IGFR mutant proteins.