A small group of ecotropic murine retroviruses cause a spongiform neurodegenerative disease manifested by tremor, paralysis, and wasting. The neurovirulence of these viruses has long been known to be determined by the sequence of the viral envelope protein, although the nature of the neurotoxicity remains to be clarified. Studies on the neurovirulent viruses FrCas(NC) and Moloney murine leukemia virus ts1 indicate that the nascent envelope protein misfolds, is retained in the endoplasmic reticulum (ER), and induces an unfolded protein response. In the present study we constructed a series of viruses with chimeric envelope genes containing segments from virulent and avirulent retroviruses. Each of the viruses studied was highly neuroinvasive but differed in the severity of the neurological disease they induced. Only viruses that contained the receptor-binding domain (RBD) of the neurovirulent virus induced neurological disease. Likewise, only viruses containing the RBD of the neurovirulent virus exhibited increased binding of the ER chaperone BiP to the envelope precursor protein and induced the unfolded protein response. Thus, the RBD determined both neurovirulence and folding instability. Among viruses carrying the neurovirulent RBD, the severity of the disease was increased when envelope sequences from the neurovirulent virus outside the RBD were also present. Interestingly, these sequences appeared to further increase the degree of folding instability (BiP binding) of the viral envelope protein. These results provide strong support for the hypothesis that this spongiform neurodegenerative disease represents a virus-induced protein folding disorder.