Signaling through FGF receptors, which constitute a family of membrane-spanning tyrosine kinases, can stimulate cell proliferation, induce or inhibit cell differentiation and plays an important role in development. Recently, mutations in FGF receptors have been shown to be associated with a number of genetically dominant human skeletal disorders. A remarkably conserved mutation (Gly 380→ Arg) in the transmembrane region of FGFR-3 has been shown to be responsible for achondroplasia (ACH) but it was not clear whether such mutations result in loss of receptor function or constitutive activation. We have therefore made mutations in the transmembrane regions of murine FGFR-2 and FGFR-3 and studied their effect on receptor activity. We show here that the ACH mutation in FGFR-3 as well as two similar mutations in FGFR-2 result in constitutive activation of these receptors. This is manifested in their ability to become autophosphorylated in the absence of ligand in L6 cells, transforming activity on NIH3T3 fibroblasts, and the ability to inhibit myogenic differentiation in the absence of growth factor. Thus the transmembrane region of FGFR-2 and FGFR-3 plays a regulatory role in receptor function and the ACH mutation produces a dominant oversignaling receptor which is no longer regulated by FGF binding. These findings also support the newly identified role of FGF signaling as a negative regulator of bone growth.