The ErbB2 receptor tyrosine kinase is overexpressed in a variety of human tumours. In order to understand the mechanism by which ErbB2 mediates tumour proliferation we have functionally inactivated the receptor using an intracellularly expressed, ER-targeted single-chain antibody (scFV-5R). Inducible expression of scFv-5R in the ErbB2-overexpressing SKBr3 breast tumour cell line leads to loss of plasma membrane localized ErbB2. Simultaneously, the activity of ErbB3, MAP kinase and PKB/Akt decreased dramatically, suggesting that active ErbB2/ErbB3 dimers are necessary for sustained activity of these kinases. Loss of functional ErbB2 caused the SKBr3 tumour cells to accumulate in the G1 phase of the cell cycle. This was a result of reduction in CDK2 activity, which was mediated by a re-distribution of p27 Kip1 from sequestering complexes to cyclin E/CDK2 complexes. The level of c-Myc and D-cyclins, proteins involved in p27 Kip1 sequestration, decreased in the absence of functional ErbB2. Ectopic expression of c-Myc led to an increase in D cyclin levels, CDK2 activity and resulted in a partial G1 rescue. We propose that c-Myc is a primary effector of ErbB2-mediated oncogenicity and functions to prevent normal p27 Kip1 control of cyclinE/CDK2.