The erbB family of receptor tyrosine kinases is frequently implicated in neoplasia. Amplification and overexpression of erbB2/neu has been found in 20 to 40% of human breast cancers. Previous studies using MMTV/c-neu transgenic mice have linked rat neu overexpression to mammary tumor development. In this study, we provide evidence that rat neu overexpression in mammary tumors of MMTV/c-neu transgenic mice is always associated with demethylation of the MMTV promoter, whereas the normal mammary glands of these transgenic mice always contain specific methylated regions of the MMTV promoter. In addition, after exposure to N-methyl-N-nitrosourea (MNU), the latency of mammary tumor development is significantly reduced and again is also associated with MMTV promoter demethylation. Thus, the transition from methylation to hypomethylation of the MMTV promoter induces high-level expression of c-neu and appears to be a prerequisite for transformation from normal to malignant mammary epithelium, either spontaneously or after carcinogen exposure. Expression of transgenic c-neu from the demethylated MMTV promoter appears to be an early event that allows outgrowth of mammary epithelium predisposed to malignant transformation.