We previously described the isolation of the IC10 retrovirus which transduced the v-Rmil oncogene, a new member of the mil/raf gene family. This virus was generated during serial passaging of Rous-associated virus type 1 (RAV-1) in chicken embryo neuroretina (NR) cells and was selected for its ability to induce proliferation of these nondividing cells. IC10 was isolated after six passages of culture supernatants but was not detected in proliferating NR cells during early virus passages. In this study, we molecularly cloned and sequenced another v-Rmil-containing provirus, designated IC11, from NR cells infected at the third virus passage of the same experiment. Both IC11 and IC10 transduced only the serine/threonine kinase domain of c-Rmil. Comparison of v-Rmil and c-Rmil sequences indicated that amino-terminal truncation is sufficient to activate the mitogenic properties of c-Rmil. IC11 and IC10 have identical 3' ends but differ by their 5' RAV-1-Rmil junctions. The 3' ends of both viruses were generated by recombination between Rmil and env genes, involving partial sequence identity. The 5' RAV-1-Rmil junction of IC11 was formed by a splicing process between the RAV-1 leader and a 37-bp c-Rmil exon located upstream of the kinase domain. NR cells infected with this virus synthesize a unique Rmil protein. IC10 contains most of the gag gene recombined with v-Rmil and encodes a gag-Rmil hybrid protein. Serial passaging of IC11 in NR cells led to the formation of a gag-Rmil-containing retrovirus. These results indicate that IC11 represents an early step in transduction and that this virus further recombined with RAV-1 to generate IC10. They confirm our previously proposed model for the multistep generation of v-mil-transducing retroviruses. Therefore, activation and transduction of c-mil and c-Rmil, in NR cells infected with RAV-1, result from a common mechanism.