The recently identified human herpesvirus 8 (HHV-8, or Kaposi’s sarcoma-associated herpesvirus) has been implicated in the etiology of both Kaposi’s sarcoma (KS) and primary effusion (body cavity-based) lymphoma (PEL) (Y. Chang et al., Science 266:1865–1869, 1994; P. S. Moore et al., J. Virol. 70:549–558, 1996). An important feature of the association of HHV-8 with these malignancies is the expression of an abundant, latency-associated 0.7-kb transcript, T0.7 (W. Zhong et al., Proc. Natl. Acad. Sci. USA 93:6641–6646, 1996). T0.7 is found in all stages in nearly all KS tumors of different epidemiologic origin, including AIDS-associated, African endemic, and classical KS (K. A. Staskus et al., J. Virol. 71:715–719, 1997), as well as in a body cavity-based lymphoma-derived cell line, BCBL-1, that is latently infected with HHV-8 (R. Renne et al., Nat. Med. 2:342–346, 1996). T0.7 encodes a unique HHV-8 open reading frame, K12, also known as kaposin. In this study, we report that the kaposin gene induced tumorigenic transformation. Constructs with kaposin expressed either from its endogenous promoter or from a heterologous promoter induced focal transformation upon transfection into Rat-3 cells. All transformed Rat-3 cell lines containing kaposin sequences produced high-grade, highly vascular, undifferentiated sarcomas upon subcutaneous injection of athymic nu/nu mice. Tumor-derived cell lines expressed kaposin mRNA, suggesting a role in the maintenance of the transformed phenotype. Furthermore, kaposin protein was detected in transformed and tumor-derived cells by immunofluorescence and localized to the cytoplasm. More importantly, expression of kaposin protein was also detected in the PEL cell lines BCBL-1 and KS-1. These findings demonstrate the oncogenic potential of kaposin and suggest its possible role in the development of KS and other HHV-8-associated malignancies.