Jaagsiekte sheep retrovirus (JSRV) is the causative agent of ovine pulmonary adenocarcinoma (OPA). The expression of the JSRV envelope (Env) alone is sufficient to transform a variety of cell lines in vitro and induce lung cancer in immunodeficient mice. In order to determine the role of the JSRV Env in OPA tumorigenesis in sheep, we derived a JSRV replication-defective virus (JS-RD) which expresses env under the control of its own long terminal repeat (LTR). JS-RD was produced by transiently transfecting 293T cells with a two plasmid system, involving (i) a packaging plasmid, with the putative JSRV packaging signal deleted, expressing the structural and enzymatic proteins Gag, Pro, and Pol, and (ii) a plasmid which expresses env in trans for JS-RD particles and provides the genomes necessary to deliver JSRV env upon infection. During the optimization of the JS-RD system we determined that both R-U5 (in the viral 5′ LTR) and the env region are important for JSRV particle production. Two independent experimental transmission studies were carried out with newborn lambs. Four of five lambs inoculated with JS-RD showed OPA lesions in the lungs at various times between 4 and 12 months postinoculation. Abundant expression of JSRV Env was detected in tumor cells of JS-RD-infected animals and PCR assays confirmed the presence of the deleted JS-RD genome. These data strongly suggest that the JSRV Env functions as a dominant oncoprotein in the natural immunocompetent host and that JSRV can induce OPA in the absence of viral spread.