Peripheral blood mononuclear cells (PBMCs) infected with the oncogenic retrovirus bovine leukemia virus (BLV) produce virus when cultured briefly. BLV can be transmitted in cocultures to adherent susceptible cells, which become infected, express viral proteins, and fuse into multinucleated syncytia several days later. PBMCs from 3 of 10 BLV-infected sheep displayed a lifelong deficiency in induction of syncytium formation among indicator cells in culture, although large numbers of PBMCs synthesized viral transcripts or capsid protein. Since the infected, syncytium-deficient PBMCs were > or = 97% B cells, the deficiency could not be attributed to altered host cell tropism. The syncytium-deficient phenotype was recapitulated in newly infected sheep, demonstrating that this property is regulated by the viral genotype. The alteration in the BLV genome delayed but did not prohibit the establishment of BLV infection in vivo. Envelope glycoproteins were synthesized in syncytium-deficient PBMCs, translocated to the cell surface, and incorporated into virions. However, monoclonal antibodies specific for the BLV surface glycoprotein did not stain fixed PBMCs of the syncytium-deficient phenotype. Moreover, an animal with syncytium-deficient PBMCs had lower titers of neutralizing antibodies throughout the first 5 years of infection than an animal with similar numbers of infected PBMCs of the syncytium-inducing phenotype. The syncytium-deficient variant productively infected indicator cells at greatly reduced efficiency, showing that the alteration affects an early step in viral entry or replication. These results suggest that the alteration maps in the env gene or in a gene whose product affects the maturation or conformation, and consequently the function, of the envelope protein complex.