We constructed a mutant, called RSV-SF2, at the ATP-binding site of pp60^v-src. In this mutant, lysine-295 is replaced with methionine. SF2 pp60^v-src was found to have a half-life similar to that of wild-type pp60^v-src and was localized in the membranous fraction of the cell. Rat cells expressing SF2 pp60^v-src were morphologically untransformed and do not form tumors. The SF2 pp60^v-src isolated from these cells lacked kinase activity with either specific immunoglobulin or other substrates, and expression of SF2 pp60^v-src failed to cause an increase of total phosphotyrosine in the proteins of infected cells. Wild-type pp60^v-src was phosphorylated on serine and tyrosine in infected cells, and the analogous phosphorylations could also be carried out in vitro. Phosphorylation of serine was catalyzed by a cyclic AMP-dependent protein kinase, and phosphorylation of tyrosine was perhaps catalyzed by pp60^v-src itself. By contrast, SF2 pp60^v-src could not be phosphorylated on serine or tyrosine either in infected cells or in vitro. These findings strengthen the belief that the phosphotransferase activity of pp60^v-src is required for neoplastic transformation by the protein and suggest that the binding of ATP to pp60^v-src elicits an allosteric change required for phosphorylation of serine in the protein.