The ligand (KL) for the c-kit receptor is a growth factor encoded at the mouse steel (SI) locus. KL exists in both cell surface and soluble forms, though little is known of the regulation and functional significance of these forms. We show here that tissue-specific alternative splicing gives two types of KL mRNA. Both encode a transmembrane domain, but in transfected cells one produced the soluble form of KL at relatively high levels, whereas the other preferentially gave the cell surface form. Cell surface KL not only stimulated proliferation, but also mediated cell-cell adhesion. The SId allele, which impairs development of hematopoietic cells, melanocytes, and germ cells, has a deletion in the KL gene removing the transmembrane and intracellular domains. Expression of a corresponding cDNA gave a soluble protein that stimulated cellular proliferation but was not associated with the cell surface. These results provide evidence that cell suface KL has a critical role in the intact organism.