The transforming activity of the cellular src (c-src) gene as well as of hybrid genes between viral and cellular src was tested by constructing derivatives of Rous sarcoma virus DNA in which all or part of the viral src gene (v-src) was replaced by the corresponding portion of the c-src gene. After these derivatives were introduced into chicken embryo fibroblasts by transfection, replication-competent virus was recovered, which induced the expression of p60src at a level equivalent to p60v-src expression in cells infected with Rous sarcoma virus wild type. Replacement of the portion of the v-src gene, either upstream or downstream of the Bgl I site, with the homologous portion of the c-src gene resulted in fully transforming viruses. On the other hand, the virus stock obtained from cells transfected with Rous sarcoma virus DNA containing the entire c-src gene had a very low titer of focus-forming virus, while it contained a high titer of infectious virus. We present evidence that the rare small foci are formed by mutant viruses generated from the original c-src-containing virus. These results indicate that overproduction of the c-src gene product does not cause cell transformation, and that this proto-oncogene is subject to a relatively high rate of mutation when incorporated in a retrovirus genome, resulting in the acquisition of transforming capacity.