A replication-defective murine retrovius, ME26, was constructed by inserting the avian gag-myb-ets sequences derived from the cloned avian acute leukemia virus, E26, into an Abelson murine leukemia virus (MuLV)-derived retroviral vector. Both ME26 DNA transfected nonproducer cells and ME26-infected cells expressed a 135 Kd gag- myb-ets fusion protein, termed p135m. p135m is localized primarily in the nucleus and can easily be washed with a low-salt buffer containing detergents. NIH 3T3 cells infected with ME26 exhibit morphological alterations and increased proliferations, and also form small colonies in soft agar. ME26 induces an increased incidence of leukemia, primarily erythroid and myeloid, with long latencies when injected into newborn mice. Analysis of frameshift and deletion mutants is consistent with the v-ets sequences being necessary to mitogenically stimulate NIH 3T3 proliferation in culture.