The NPM-ALK fusion gene, formed by the t(2;5)(p23;q35) translocation in non-Hodgkin's lymphoma, encodes a 75-kDa hybrid protein that contains the amino-terminal 117 amino acid residues of the nucleolar phosphoprotein nucleophosmin (NPM) joined to the entire cytoplasmic portion of the receptor tyrosine kinase ALK (anaplastic lymphoma kinase). Here, we demonstrate the transforming ability of NPM-ALK and show that oncogenesis by the chimeric protein requires the activation of its kinase function as a result of oligomerization mediated by the NPM segment. Sedimentation gradient experiments revealed that NPM-ALK forms in vivo multimeric complexes of approximately 200 kDa or greater that also contain normal NPM. Cell fractionation studies of the t(2;5) translocation-containing lymphoma cell line SUP-M2 showed NPM-ALK to be localized within both the cytoplasmic and nuclear compartments. Immunostaining performed with both polyclonal and monoclonal anti-ALK antibodies confirmed the dual location of the oncoprotein and also indicated that NPM-ALK is abundant within both the nucleoplasm and the nucleolus. An intact NPM segment is absolutely required for NPM-ALK-mediated oncogenesis, as indicated by our observation that three different NPM-ALK mutant proteins lacking nonoverlapping portions of the NPM segment were each unable to form complexes, lacked kinase activity in vivo, and failed to transform cells. However, NPM could be functionally replaced in the fusion protein with the portion of the unrelated translocated promoter region (TPR) protein that activates the TPR-MET fusion kinase by mediating dimerization through its leucine zipper motif. This engineered TPR-ALK hybrid protein, which transformed cells almost as efficiently as NPM-ALK, was localized solely within the cytoplasm of cells. These data indicate that the nuclear and nucleolar localization of NPM-ALK, which probably occur because of transport via the shuttling activity of NPM, is not required for oncogenesis. Further, the activation of the truncated ALK protein by a completely heterologous oligomerization domain suggests that the functionally important role of the NPM segment of NPM-ALK in transformation is restricted to the formation of kinase-active oligomers and does not involve the alteration of normal NPM functions.