The search for molecules expressed in epithelial cells and possessing transforming potential to fibroblasts made it possible to identify a novel oncogene, ect2. The isolated cDNA is shown to have been activated by amino terminal truncation of the normal product. The Ect2 protein exhibits sequence similarity within a central core of 255 amino acids with the products of the breakpoint cluster gene, bcr, the yeast cell cycle gene, CDC24 and the dbl oncogene. Each of these genes encodes regulatory molecules or effectors for Rho-like small GTP binding proteins. the baculovirus-expressed Ect2 protein was capable of highly specific binding to Rho and Rac proteins, while the Dbl protein showed broader binding specificity to Rho family proteins. Thus, ect2 represents a new member of an expanding family, whose products can exhibit transforming properties and interact with Rho-like proteins of the Ras superfamily.