Achondroplasia, the most common genetic form of dwarfism, is an autosomal dominant disorder whose underlying mechanism is a defect in the maturation of the cartilage growth plate of long bones. Achondroplasia has recently been shown to result from a Gly to Arg substitution in the transmembrane domain of the fibroblast growth factor receptor 3 (FGFR3), although the molecular consequences of this mutation have not been investigated. By substituting the transmembrane domain of the Neu receptor tyrosine kinase with the transmembrane domains of wild‐type and mutant FGFR3, the Arg380 mutation in FGFR3 is shown to activate both the kinase and transforming activities of this chimeric receptor. Residues with side chains capable of participating in hydrogen bond formation, including Glu, Asp, and to a lesser extent, Gln, His and Lys, were able to substitute for the activating Arg380 mutation. The Arg380 point mutation also causes ligand‐independent stimulation of the tyrosine kinase activity of FGFR3 itself, and greatly increased constitutive levels of phosphotyrosine on the receptor. These results suggest that the molecular basis of achondroplasia is unregulated signal transduction through FGFR3, which may result in inappropriate cartilage growth plate differentiation and thus abnormal long bone development. Achondroplasia may be one of the number of cogenital disorders where constitutive activation of a member of the FGFR family leads to development abnormalities.