This paper describes the successful construction and propagation of a transducing animal virus. A segment of DNA approximately 2 kilobases (kb) in length was removed from the late region of the SV40 genome by sequential cleavages with Hpa II and Bam HI endonucleases (at 0.735 and 0.13, respectively, on the SV40 DNA map). A segment of about 1.5 kb of lambda phage containing ORI (the origin of lambda DNA replication), the two structural genes CII and cro, and four transcriptional promoters, was inserted into the late region of SV40 by the poly(dA:dT) joining procedure. The resulting hybrid DNAs were cloned and propagated as virions in CV-1 monkey kidney cells by mixed infections at 41 degrees C with tsA58, an early mutant of SV40. The location, size, and orientation of the inserted lambda DNA segment was verified by restriction endonuclease digestions and by heteroduplex analysis. Clones with each of the two possible orientations of the lambda DNA segment were isolated. CV-1 cells infected with lambda-SV40 hybrid virus contain little or no lambda-specific RNA or proteins, even though the hybrid virus replicates nearly as well as the helper virus.