We have recently identified the invasion-inducing Tiam1 gene by proviral insertional mutagenesis. The Tiam1 protein shares a Dbl homology (DH) domain with an increasing number of oncoproteins, some of which have been shown to function as GDP dissociation stimulators (GDS) for small GTPases of the Rho family. In vitro and in vivo analyses indicate that Tiam1 activates the Rho like GTPase Rac1. Here we have analysed the consequences of overexpression of several mutant Tiam1 proteins in NIH3T3 fibroblasts. Similar to other proteins containing a DH domain, N-terminal truncation of the Tiam1 protein activates its oncogenic potential, establishing Tiam1 as a proto-oncogene. In addition, we show the sequences N-terminal of the catalytic DH domain are required for morphological transformation accompanied by the formation of membrane ruffling, but not for the induction of an oncogenic phenotype. Overexpression of constitutively active Rac1 (V12Rac1) in NIH3T3 cells produces a similar oncogenic phenotype, suggesting that the oncogenic effects of Tiam1 are a consequence of Rac activation.