Expression of the v-src gene of Rous sarcoma virus in avian embryo neuroretina cells results in transformation and sustained proliferation of these normally resting cells. Transformed neuroretina cells are also tumorigenic upon inoculation into immunodeficient hosts. We have previously described conditional mutants of Rous sarcoma virus encoding p60v-src proteins which induce proliferation of neuroretina cells in the absence of transformation and tumorigenicity. These results suggest that p60v-src is composed of functionally distinct domains which may interact with multiple cellular targets. In this study, we describe a spontaneous variant of Rous sarcoma virus, subgroup E, which carries a deletion of 278 base pairs in the 5' portion of the v-src gene but which has retained the ability to induce proliferation of quail neuroretina cells. The deleted v-src gene encodes a 45,000-molecular-weight phosphoprotein which contains both phosphoserine and phosphotyrosine, is myristylated, and possesses tyrosine kinase activity indistinguishable from that of wild-type p60v-src. Molecular cloning and sequence analysis of the mutant v-src gene have shown that this deletion extends from amino acid 33 to 126 of the wild-type p60v-src. Therefore, this portion of the v-src protein is dispensable for the mitogenic activity of Rous sarcoma virus in neuroretina cells.