HER-2/neu (erbB-2) encodes an 185-kDa orphan receptor tyrosine kinase that is constitutively active as a dimer and displays potent oncogenic activity when overexpressed. Here we describe a secreted protein of approximately 68 kDa, designated herstatin, as the product of an alternative HER-2 transcript that retains intron 8. This alternative transcript specifies 340 residues identical to subdomains I and II from the extracellular domain of p185HER-2 followed by a unique C-terminal sequence of 79 aa encoded by intron 8. The recombinant product of the alternative transcript specifically binds to HER-2-transfected cells with a K(D) of approximately 14 nM and was chemically crosslinked to p185HER-2, whereas the intron encoded sequence alone also binds with high affinity to transfected cells and associates with p185 solubilized from cell extracts. The herstatin mRNA is expressed in normal human fetal kidney and liver, but is at reduced levels relative to p185HER-2 mRNA in carcinoma cells that contain an amplified HER-2 gene. Herstatin appears to be an inhibitor of p185HER-2, because it disrupts dimers, reduces tyrosine phosphorylation of p185, and inhibits the anchorage-independent growth of transformed cells that overexpress HER-2.