Anchorage-independent proliferation is a hallmark of oncogenic transformation and is thought to be conducive to proliferation of cancer cells away from their site of origin. We have previously reported that primary Schwann cells expressing the SV40 Large T antigen (LT) are not fully transformed in that they maintain a strict requirement for attachment, requiring a further genetic change, such as oncogenic Ras, to gain anchorage-independence. Using the LT-expressing cells, we performed a genetic screen for anchorage-independent proliferation and identified Sensory and Motor Neuron Derived Factor (SMDF), a transmembrane class III isoform of Neuregulin 1. In contrast to oncogenic Ras, SMDF induced enhanced proliferation in normal primary Schwann cells but did not trigger cellular senescence. In cooperation with LT, SMDF drove anchorage-independent proliferation, loss of contact inhibition and tumourigenicity. This transforming ability was shared with membrane-bound class III but not secreted class I isoforms of Neuregulin, indicating a distinct mechanism of action. Importantly, we show that despite being membrane-bound signalling molecules, class III neuregulins transform via a cell intrinsic mechanism, as a result of constitutive, elevated levels of ErbB signalling at high cell density and in anchorage-free conditions. This novel transforming mechanism may provide new targets for cancer therapy.