We have developed a convenient and sensitive assay of eucaryotic gene expression which uses the Escherichia coli lacZ gene product, j-galactosidase, as a nonselectable marker. This system has been applied to the analysis of Rous sarcoma virus replication and gene expression. Avian cells were transfected with plasmids encoding in-frame gene fusions of the N-terminal portion of the gag gene to a 'lacZ gene, which requires both transcriptional and translational initiation signals; these were supplied by the virus long terminal repeat and leader region. Readily detectable quantities of 0-galactosidase were synthesized in transfected cells; it was demonstrated that the levels of enzyme activity induced in such cultures increased linearly with the input DNA concentration and also correlated with mRNA levels. By using a Rous sarcoma virus-derived vector containing the src gene and a related virus as a helper, it was shown that lac sequences were compatible with all phases of the virus life cycle. gag-lacZ fusion proteins were immunoprecipitable from cultures which stably expressed lacZ as well as src. Virus rescued from stably transfected cultures resulted in continued lac and src expression in recipient cells. One particular construction was efficiently transmitted as virus, although it lacked sequences thought to be important for encapsidation of RNA into virions. The data presented here demonstrate the use of lacZ as a marker of retrovirus gene expression and replication.Retrovirus replication and gene expression are interwoven in a complex fashion, as are the sequences which regulate these processes. As a consequence, an understanding of the viral genome requires not only dissection of isolated functional regions, but also analysis of the manner in which different regions interact, both structurally and functionally. Studies of deletion mutants have shown that the products encoded by the viral structural genes of gag, pol, and env may be supplied in trans, and have identified certain regions of the genome which act in cis. Regions required in cis for reverse transcription of genome RNA, integration of proviral DNA, and synthesis of RNA include the long terminal repeats (LTRs) and adjacent noncoding regions (45). The LTRs which flank an integrated DNA provirus are composed of sequences derived from both the 5' and 3' ends of the RNA genome (refered to as U5 and U3, respectively) and contain signals for transcription initiation and for generation of 3' ends of viral genome and mRNA. It is presumed that the genome contains sequences which modulate the splicing of mRNAs, as not all viral transcripts are spliced; still other sequences direct the encapsidation of full-length RNA genomes. There is genetic evidence that a sequence within the untranslated leader region near the 5' end of the genome is required for packaging of Rous sarcoma virus (RSV) genomes into virions (22,39). A similar function has also been attributed to 115 bases near the 3' end of the genome (44), as well as to a 28-base near-perfect palindrome whic...