We previously reported that infection of chicken embryonic neuroretina cells with Rous-associated virus type 1 leads to the frequent occurrence of spliced readthrough transcripts containing viral and cellular sequences. Generation of such chimeric transcripts constitutes a very early step in oncogene transduction. We report, here, the isolation of a c-mil transducing retrovirus, designated IC4, which contains a highly mutated U3 sequence in which 48% of A is converted to G. Functional analysis of this variant U3 indicated that these mutations do not impair viral transcription and replication; however, they abolish functioning of its polyadenylation signal, thus allowing readthrough transcription of downstream cellular sequences. On the basis of these results, we designed a nonreplicative retroviral vector, pIC4Neo, expressing the neomycin resistance (Neo(r)) gene under the control of the IC4 long terminal repeat. Infection of nondividing neuroretina cells with virus produced by a packaging cell line transfected with pIC4Neo occasionally resulted in sustained cell proliferation. Two independent G418-resistant proliferating cultures were found to express hybrid RNAs containing viral and cellular sequences. These sequences were characterized by reverse transcription-PCR and were identified in both cultures, suggesting that proliferation was correlated with a common integration locus. These results indicate that IC4Neo virus functions as a useful insertional mutagen and may allow identification of genes potentially involved in regulation of cell division.