Transcriptional activation of gene expression by oncogenic proteins can lead to cellular transformation. It has recently been demonstrated that the protein encoded by the v-rel oncogene from reticuloendotheliosis virus strain T can transactivate gene expression from certain promoters in a cell-specific manner. We have examined the cytological location, transforming properties, and transactivation properties of proteins encoded by chimeric turkey v-rel/chicken c-rel genes. We found that whereas the v-rel protein was nuclear in both chicken embryo and rat fibroblasts, the presence of the C terminus of the c-rel protein inhibited nuclear localization of the rel protein in these fibroblasts. Cytoplasmic rel proteins containing C-terminal c-rel sequences transactivated gene expression from the polyomavirus late promoter as efficiently as did similar rel proteins located in the nucleus. These results indicate that the cellular location of rel proteins is not important for transactivation of gene expression and suggest that transactivation by rel proteins is indirect, perhaps by affecting an intracellular signal transduction pathway that eventually results in the alteration of gene expression. The transforming properties of the rel protein were unaltered by the presence of the c-rel C terminus, but, as previously reported for turkey c-rel sequences, substitution of chicken c-rel sequences for internal v-rel sequences reduced the transforming activity of the rel protein and eliminated the immortalization ability. However, all of the chimeric v/c-rel proteins were able to transactivate gene expression, indicating that transactivation does not correlate with transformation. These results suggest that transactivation may be necessary but is not sufficient for transformation by rel proteins.