Attempts to isolate full-length unintegrated circular forms of the caprine arthritis encephalitis virus (CAEV) genome yielded only a large number of molecules with deletions. The 3' borders of most of these deletions were near the U3 region of the long terminal repeat whereas the 5' edges were found at various upstream sites within pol or env. With one exception, gag sequences were always present. Analysis of molecular clones derived from integrated proviral CAEV genomes from the same infected cells showed a similar spectrum of deletions. The presence of transcriptionally active elements within the U3 domain of the defective genomes, as well as cis-acting elements within the leader sequences known to be required for efficient encapsidation of viral RNA, suggested that the defective viral DNA genomes could be transcribed into defective RNA molecules which could then be packaged into virions. Isopycnic density gradient centrifugation of supernatants of infected cell cultures indicated the presence of particles with densities less than that expected for intact virions (1.16 g/cc). Northern analysis revealed the presence of smaller viral-specific RNAs that lacked env sequences. These data, along with the structures of the molecular clones, suggest that CAEV stocks contain particles with defective genomes. The role of these particles in influencing the course of virus infection remains to be determined.