Certain murine leukemia viruses (MLVs) can induce progressive noninflammatory spongiform neurodegeneration similar to that caused by prions. The primary MLV determinants responsible have been mapped to within the env gene; however, it has remained unclear how env mediates disease, whether non-Env viral components are required, and what central nervous system (CNS) cells constitute the critical CNS targets. To address these questions, we examined the effect of transplanting engraftable C17.2 neural stem cells engineered to pseudotype, disseminate, and trans-complement neurovirulent (CasBrE, CasE, and CasES) or non-neurovirulent (Friend and SFF-FE) env sequences (SU or SU/TM) within the CNS using either the "non-neurovirulent" amphotropic helper virus, 4070A, or pgag-polgpt (a nonpackaged vector encoding Gag-Pol). These studies revealed that acute MLV-induced spongiosis results from two separable activities of Env. First, Env causes neuropathology through unique viral targeting within the CNS, which was efficiently mediated by ecotropic Envs (CasBrE and Friend), but not 4070A amphotropic Env. Second, Env induces spongiosis through a toxin activity that is MLV-receptor independent and does not require the coexpression of other viral structural proteins. CasBrE and 4070A Envs possess the toxin activity, whereas Friend Env does not. Although the identity of the critical viral target cell(s) remains unresolved, our results appear to exclude microglia and oligodendrocyte lineage cells, while implicating viral entry into susceptible neurons. Thus, MLV-induced disease parallels prionopathies in that a single protein, Env, mediates both the CNS targeting and the toxicity of the infectious agent that manifests itself as progressive vacuolar neurodegeneration.