Proto-oncogenes when transduced by retroviruses may undergo structural modifications that render their gene products oncogenic. The c-fms gene encodes a transmembrane protein with tyrosine kinase activity that is very similar or identical to the receptor for the monocytic-colony stimulating factor (M-CSF). The transforming homologue of this oncogene (v-fms) in the McDonough strain of the feline sarcoma virus causes fibrosarcomas in cats. Molecular cloning and sequence analysis of the cDNA that encodes the cytoplasmic domain of the human c-fms gene has shown that the product of the transduced viral homologue, v-fms, is truncated at the C-terminal end. The forty amino acids at the C-terminal of the c-fms gene product are replaced in the v-fms gene product by 11 amino acids encoded by the retroviral genome. Hybrid v-fms/c-fms genes, in which either the entire cytoplasmic domain or the C-terminal coding sequences of the v-fms gene were replaced by the corresponding segments of the c-fms gene, had a reduced ability to transform fibroblasts despite a high level of the encoded protein of the cell surface. These data indicate that the C-terminal modifications contribute to the transforming potential of the v-fms viral oncogene product.