The segment of the avian leukemia virus E26 genome near the termination of the p135gag-myb-ets open reading frame contains an inversion of the chicken ets-1 sequence. The inversion contains at least 41 bp and may be as large as 46 bp. This results in the replacement of 13 amino acids of chicken ets-1, with 16 amino acids derived from reverse complement of the normal ets-1 coding strand or read-through into E26 env sequences. At least 13 of these codons are specified by the inverted ets sequences. This represents the first reported occurrence of inverted oncogene sequences in a natural retrovirus. The inverted ets sequences are immediately followed by sequences homologous to the Rous sarcoma virus Prague B env gene. Since the E26 env sequence is more closely related to subgroup B avian retroviruses than to avian retroviruses from subgroups A, C, D, or E, the progenitor of E26 was a virus belonging to avian retrovirus subgroup B.