Peripheral nerve sheath tumors (PNSTs) are rare in chickens and their etiology remains to be elucidated. In this study, a naturally occurring PNST in a Japanese native fowl (Gallus gallus domesticus) was pathologically examined and the strain of avian leukosis virus (ALV) isolated from the neoplasm was characterized by molecular biological analysis. The fowl presented with a firm subcutaneous mass in the neck. The mass, connected to the adjacent spinal cord (C9–14), was microscopically composed of highly cellular tissue of spindle cells arranged in interlacing bundles, streams, and palisading patterns with Verocay bodies and less cellular tissue with abundant collagen. Immunohistochemically, neoplastic cells were divided into two types: perineurial cells positive for vimentin, glucose transporter 1 (GLUT1), and claudin1; and Schwann cells positive for vimentin, occasionally positive for S-100 α/β but negative for GLUT1. Based on these findings, a diagnosis of neurofibrosarcoma was made. The complete nucleotide sequence of an ALV strain, CTS_5371, isolated from the neoplasm was determined and phylogenetic analysis indicated that the strain was a novel recombinant virus from avian leukosis/sarcoma viruses previously reported. Additionally, experimental infection revealed that CTS_5371 induced the proliferation of Schwann cells and perineurial cells. These results suggest that this ALV strain has the ability to induce PNSTs in chickens.