Myristylation of FBR v-fos, a c-fos retroviral homologue that causes osteosarcomas in mice, determines many of its transcriptional properties in vitro. To determine whether myristylation of FBR v-fos contributes to in vivo tumorigenicity, we examined its transforming capability in comparison to a nonmyristylated FBR v-fos (G2A-R). Retroviral infections with FBR v-fos and G2A-R transform BALB/c-3T3 cells. The number, size, and cellular morphology of foci generated by both FBR and G2A-R are indistinguishable. However, marked biological differences were found in transgenic mice expressing either the myristylated FBR v-fos or the nonmyristylated G2A-R. 11 of 26 FBR v-fos transgenic mice died as a result of gross tumor burden. None of the 28 G2A-R transgenic mice died from tumor burden, and only two of the G2A-R mice developed bone tumors. Histologic examination of the tumors reveals that the FBR v-fos bone tumors contain malignant cells with features of four cell lineages (osteocytes, chondrocytes, myocytes, and adipocytes) in an environment rich in extracellular matrix (ECM). However, the G2A-R tumors exist in an environment devoid of ECM and display malignant cells with features of adipocytes. Masson staining reveals that the ECM of the FBR tumors stains strongly for collagen. Immunohistochemical staining with collagen III antibody demonstrates an abundance of collagen III expression in this ECM. While NH2-terminal myristylation is not required for FBR immortalization and transformation, it is essential in determining the degree of differentiation and tumorigenicity of malignant cells.