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Epidermal growth factor receptor (EGFR) signaling inhibition by monoclonal antibodies and EGFR-specific tyrosine kinase inhibitors has shown clinical efficacy in cancer by restoring susceptibility of tumor cells to therapeutic apoptosis induction. Tumor necrosis factor-related apoptosis-inducing ligand (TRAIL) is a promising anti-cancer agent with tumor-selective apoptotic activity. Here we present a novel approach that combines EGFR-signaling inhibition with target cell-restricted apoptosis induction using a TRAIL fusion protein with engineered specificity for EGFR. This fusion protein, scFv425:sTRAIL, comprises the EGFR-blocking antibody fragment scFv425 genetically fused to soluble TRAIL (sTRAIL). Treatment with scFv425:sTRAIL resulted in the specific accretion to the cell surface of EGFR-positive cells only. EGFR-specific binding rapidly induced a dephosphorylation of EGFR and down-stream mitogenic signaling, which was accompanied by cFLIP(L) down-regulation and Bad dephosphorylation. EGFR-specific binding converted soluble scFv425:sTRAIL into a membrane-bound form of TRAIL that cross-linked agonistic TRAIL receptors in a paracrine manner, resulting in potent apoptosis induction in a series of EGFR-positive tumor cell lines. Co-treatment of EGFR-positive tumor cells with the EGFR-tyrosine kinase inhibitor Iressa resulted in a potent synergistic pro-apoptotic effect, caused by the specific down-regulation of c-FLIP. Furthermore, in mixed culture experiments binding (L)of scFv425:sTRAIL to EGFR-positive target cells conveyed a potent apoptotic effect toward EGFR-negative bystander tumor cells. The favorable characteristics of scFv425:sTRAIL, alone and in combination with Iressa, as well as its potent anti-tumor bystander activity indicate its potential value for treatment of EGFR-expressing cancers.