Erlotinib (Tarceva), is an orally available, reversible inhibitor of epidermal growth factor receptor (EGFR; HER1) that exhibits inhibitory activity on purified HER2 kinase at much higher concentrations. Despite the minimal activity on purified protein in vitro, in vivo studies show that erlotinib inhibits the growth of HER2-driven systems effectively. Several hypotheses have been put forward to explain this discrepancy. In particular, it has been suggested that erlotinib might indirectly suppress the activity of HER2 by blocking the ability of EGFR to transactivate it when the two receptors are part of a heterodimer complex. However, an alternative possibility that has not been adequately addressed is whether the direct inhibitory action of erlotinib on the HER2 kinase might account for the observed biological responses. To distinguish between a direct effect of erlotinib on HER2 kinase in intact cells or an indirect effect of erlotinib on HER2 activity that is mediated through EGFR, we generated cell lines that express either EGFR-H2 chimeric receptor or HER2 and HER3 receptors in an EGFR-negative background. We show that dose-dependent inhibition of HER2 was achieved at the receptor level, on downstream signaling molecules, and more importantly was also translated into inhibition of cell growth. Our findings imply that the inhibitory effect of erlotinib in HER2-expressing cells may in part be mediated through direct interaction with HER2 rather than indirectly through a process that requires the presence of EGFR. [Cancer Res 2007;67(3):1228–38]