Like the v-Onc proteins encoded by many transforming retroviruses, the v-Abl protein is expressed as a Gag-Onc fusion. Although the Gag-derived myristoylation signal targets the v-Abl protein to the plasma membrane, the protein contains the entire MA and p12 sequences and a small number of CA-derived residues. To understand the role of Gag sequences in transformation, mutants lacking portions of these sequences were examined for the effects of these deletions on v-Abl function and localization. Deletion of the N-terminal third of p12 or all of p12 enhanced the transformation of both pre-B cells and NIH 3T3 cells. In contrast, deletions in MA or a deletion removing all of Gag except the first 34 amino acids important for myristoylation highly compromised the ability to transform either cell type. Although all of the mutant proteins retained kinase activity, those defective in transformation were reduced in their ability to activate Erk, suggesting a role for Gag sequences in v-Abl signaling. Immunofluorescence analysis revealed that a v-Abl protein retaining only the first 34 amino acids of Gag localized to the nucleus. These data indicate that Gag sequences are important for normal v-Abl signaling and that they suppress nuclear localization of the molecule.