Transgenic mice engineered to overexpress the HER-2/neu/erbB-2 protooncogene under the control of a mammary-specific promoter develop mammary tumors and are a model for human breast cancer. Signal transduction by Neu was examined in situ in the tumors of these transgenic mice. This was accomplished using the PN2A monoclonal antibody, which recognizes Neu only in the phosphorylated, and therefore actively signaling, state. Immunohistochemistry using PN2A demonstrated that Neu actively signals in the tumors of Neu transgenic mice. Expression of Neu was always accompanied by co-overexpression of the endogenous epidermal growth factor receptor. Qualitatively similar results were found in mammary tumors from mice bitransgenic for the neu and transforming growth factor-alpha genes (both driven by the mouse mammary tumor virus promoter). Early mammary lesions demonstrated distinctive patterns of Neu activation relative to expression levels. Overexpression and activation were separable both temporally and spatially. These results refine the multi-step model for the role of Neu in mammary neoplasia and establish phosphorylation-state specific antibodies as a powerful tool for investigating tumor progression.