The v-ski oncogene promotes cellular transformation and myogenic differentiation. In quail embryo fibroblasts the two properties are displayed simultaneously and terminal muscle differentiation occurs only among cells already transformed by v-ski. To understand how the two phenotypes are derived from a single gene, we have undertaken to identify functionally important regions in v-ski and to test whether these regions can promote one phenotype without the other. We have generated both random and targeted mutations in v-ski and evaluated the effects of these mutations on expression, intracellular location, transformation, and myogenesis. Among a total of 26 mutants analysed, we have not found complete separation of the myogenic and transforming properties. Mutations in the region of v-Ski encoded by exon 1 of c-ski frequently abolish both its transformation and muscle differentiation activities, whereas mutations outside of this region are always tolerated. When expressed in cells from a minigene containing only the exon 1 sequence, the protein displays the transforming and myogenic activities similar to v-Ski. These results argue that the amino acid sequence encoded by exon 1 contains the core functional domain of the oncoprotein. To determine whether this functional domain has a structural counterpart, we have fragmented the v-Ski protein by limited proteolysis and found a single proteolytically stable domain spanning the entire exon 1-encoded region. Physical studies of the polypeptide encoded by exon 1 confirms that it folds into a compact, globular protein. The finding that both the transforming and myogenic properties of v-Ski are inseparable by mutation and are contained in a single domain suggests that they are derived from the same function.