Protooncogenes when transduced by retroviruses may undergo structural modifications that render their gene products oncogenic. The c-fms gene encodes a transmembrane protein with tyrosine kinase activity that is very similar or identical to the receptor for the monocyte-macrophage colony-stimulating factor. Its transforming homologue (v-fms) in the Susan McDonough strain feline sarcoma virus causes fibrosarcomas in cats. Molecular cloning and sequence analysis of the cDNA that encodes the cytoplasmic domain of the human c-fms gene shows that the product of the transduced viral homologue, v-fms, is truncated at the COOH-terminal end. The COOH-terminal 40 amino acids of the c-fms gene product are replaced in the v-fms gene product by 11 amino acids encoded by the retroviral genome. Hybrid v-fms/c-fms genes, in which either the entire cytoplasmic domain or the COOH-terminal coding sequences of the v-fms gene were replaced by the corresponding segments of the c-fms gene, had a reduced ability to transform fibroblasts despite a high level of encoded protein on the cell surface. These data indicate that the COOH-terminal modifications contribute to the transforming potential of the v-fms viral oncogene product.