A complementary DNA clone synthesized from the chicken junD mRNA, containing 5'- and 3'-untranslated sequences, was inserted in the retroviral expression vector RCAS to yield the construct JD. A second RCAS construct (DDDD) contained only the coding domains of JunD. DDDD did not transform upon primary transfection, but JD produced small numbers of transformed cell foci in chicken embryo fibroblast cultures. The virus recovered from these foci, JDV, was moderately transforming for chicken fibroblasts and weakly oncogenic in the animal. Its genome was rearranged, showing evidence for two recombination events. The first crossover was located between 5'-untranslated and coding sequences of junD and incorporated part of the 5'-untranslated region into an open reading frame. The second crossover occurred between junD and gag. The two crossovers generate a single open reading frame of 2064 nucleotides that encodes an 85 kilodalton protein in which sequences in the amino-terminal region of JunD are duplicated. This gag junD reading frame was recloned and then reconstituted into a replication-defective but transformation-competent retrovirus, indicating that the Gag-JunD fusion protein is the effector of transformation. A construct containing this rearranged coding sequence of JunD in Rc/RSV transactivated the collagenase promoter in chicken cells. Southern blot analysis of several independently isolated JunD transformants and deletion analysis of JDV indicated that duplication of a domain in the amino-terminal region of JunD is crucial for transformation and transactivation.