US manufacturing’s employment share fell from 27 to 9 percent between 1977 and 2016. A third of this reallocation is driven by a shift towards services – particularly professional services and retail – within continuing manufacturers. We show that firms with in-house professional service establishments are larger, grow faster, more likely to survive and more diversified than firms without such plants. These trends motivate a model of within-firm structural transformation in which non-manufacturing workers complement physical production, and where physical input price reductions induce firms to reallocate towards services. This mechanism is consistent with US firms’ responses to growing trade with China.