A revertant cell line was generated from v-raf transformed NIH/3T3 fibroblasts. These cells, termed CHP25, express a functional v-raf oncogene. However, they are non-tumorigenic, do not form colonies in soft agar and possess a flat morphology. CHP25 cells are resistant to re-transformation by sis, ras, tyrosine kinase- as well as serine/threonine kinase-encoding oncogenes suggesting that Raf functions downstream of most membrane associated signal transducers. In contrast to v-raf transformed cells, in which the endogenous Raf-1 protein kinase is constitutively activated, v-Raf in CHP25 cells does not activate endogenous Raf-1 kinase. Since mitogen regulation of Raf-1 kinase in CHP25 cells is intact, we conclude that CHP25 cells are blocked at the level of Raf-1 substrate phosphorylation. Consistent with this interpretation CHP25 cells show specific alterations of early gene induction. The serum induction of c-fos and junD as well as the serum and TPA (12-O-tetradecanoylphorbol-13-acetate) induction of junB and egr-1 are almost completely abolished. Only v-fos can transform CHP25, whereas c-fos, v-myc, c-jun and junB are ineffective. These data suggest that the lesion responsible for the revertant phenotype of CHP25 cells is the inability to activate the AP-1 complex. We conclude that Raf-1 signaling is essential for transformation of NIH/3T3 cells by peripheral oncogenes and for regulation of a subset of early response genes by TPA and serum growth factors.