Studies on the structure and function of type II intracisternal A- particle (IAP) retroviral elements have continued. To define factors involved in IAP element transposition, we have studied the MOPC-315 and MOPC-104E myeloma cell lines in which the type IIB subclass of elements has undergone a marked amplification. Type IIB elements also encode the major IAP transcripts in these cells. We have found endonuclease activity in IAP fractions from both myelomas as demonstrated by conversion of supercoiled plasmid DNA to relaxed and linear forms. In addition, DNA molecules consistent in structure with a linear type IIB IAP provirus were present in the cytoplasm of MOPC-315 cells. Rabbit antisera to an oligopeptide predicted from the nucleotide sequence of the endonuclease gene in a full length genomic IAP element reacted with MOPC-315 cells when assayed by immunofluorescence and with a protein in cell fractions on Western blots. The antisera also reacted with a fusion protein produced in bacteria transfected with a randomly selected genomic type IIB IAP element, demonstrating that the endonuclease reading frame was open in this otherwise defective endogenous provirus. Sequencing has revealed that the type II insertions introduce a splice acceptor site not present in a full size element. The splicing mechanism may result in higher levels of endonuclease than can be achieved from expression of elements in which a frame shift is required for translation of the RNA, and subsequent cleavage of the polymerase gene product has to occur.