The c-fps/fes protooncogene encodes a 92-kDa protein tyrosine kinase that is involved in myeloid cell development and immune responses of granulocytes and macrophages. To help define its biological role and mechanism of action, we have developed a gain of function allele of Fes that has potent biological activity in myeloid cells. Introduction of constitutively active Fes into myeloid progenitors induced the appearance of fully differentiated macrophages or granulocytes depending on the lineage commitment of the transduced cells. We found that Fes-induced macrophage differentiation correlated with activation of the ets family transcription factor PU.1, which is essential for macrophage development. On the other hand, granulocyte differentiation by Fes was mediated through activation of CCAAT/enhancer-binding protein alpha (C/EBP-alpha) and STAT3, two transcription factors that are critical for granulocytic differentiation. We postulate that Fes transduces inductive signals for terminal macrophage and granulocyte differentiation, and that this biological activity is mediated through the activation of lineage-specific transcription factors.