Clones of chicken embryo fibroblasts exogenously infected with the endogenous avian retrovirus were analyzed to examine the replication of this virus in permissive (Gr+) and nonpermissive (Gr-) cells. The results demonstrate that the endogenous virus was capable of infecting both Gr+ and Gr- cells with equal efficiency. Infected clones of Gr+ and Gr- cells differed, however, in two significant ways. At the time of their initial characterization, the Gr+ clones produced 100- to 1,000-fold more virus than the Gr- clones. Further, the amount of virus produced by Gr+ clones did not change significantly during serial passage of the cells. In contrast, continued passage of the infected Gr- clones resulted in a gradual increase in the amount of virus produced. Individual clones of infected Gr- cells produced infectious virus at rates that, initially, differed by a factor of more than 10(4). The large differences in the production of virus by these clones could not be explained by equally large differences in the number of infected cells within the clonal populations. Greater than 80% of the clonal populations examined ultimately produced virus at rates that were not significantly different from the rates observed in infected Gr+ cells. Virus produced by these infected Gr- cells exhibited the same restricted replication upon establishing a new infection in nonpermissive cells. Analysis of the appearance of free and integrated viral DNA sequences during endogenous virus infection of Gr+ and Gr- cells demonstrated that, after an initial delay in the synthesis of free viral DNA in Gr- cells, the nonpermissive cells ultimately acquired as many integrated viral DNA sequences as were found in infected Gr+ cells. These results indicate that a majority of the infectious particles of the endogenous virus are capable of establishing infection in a Gr- cell and, ultimately, of producing virus at a rate that is not significantly different from that produced by infected Gr+ cells. The virus produced from the Gr- cells is not a stable genetic variant of the original endogenous virus that is capable of unrestricted replication in nonpermissive cells. The reduced efficiency with which the endogenous virus initially replicates in nonpermissive cells and the increased length of time required for infected Gr- cells to produce maximal virus titers suggest that the endogenous virus may utilize a different mechanism of replication in Gr+ and Gr- fibroblasts.