Reticuloendotheliosis virus (REV-T) induces a rapidly fatal lymphoma in chickens through the expression of its oncogene, v-rel, REV-T also morphologically transforms avian fibroblasts in vitro. These transformed cells displayed limited anchorage-independent growth and reached higher saturation density than uninfected or REV-A-infected fibroblasts. Morphologically transformed fibroblasts were tumorigenic when injected into the wing web of chickens. In transformed fibroblasts, the v-rel oncogene was expressed as a 57 kDa phosphoprotein with a half-life of 2 to 4 hr. A cellular phosphoprotein of about 40 kDa was also observed in immunoprecipitates of transformed fibroblasts. The subcellular location of the v-rel-encoded protein was determined using cell fractionation procedures and immunofluorescent staining. In acutely infected, nontransformed fibroblasts, pp57v-rel was associated with the nuclear region, but in morphologically transformed cells the v-rel protein was found in the cytoplasm. These observations suggest that the expression of the v-rel oncogene is insufficient for transformation and that the cellular localization of this transforming protein to the cytoplasm may be required for the progression to an altered cell phenotype in avian fibroblasts.