Epstein Barr virus (EBV) nuclear protein 2 (EBNA-2) is essential for B cell transformation by the virus. The goal of this project is to determine the mechanism of B cell transformation by EBV. Inoculation of EBV-transformed lymphocytes into immunodeficient SCID mice cells results in the formation of EBV-containing B cell tumors of human origin. We constructed cell lines transformed by several EBV mutants which were isogenic, except for different deletions in their EBV nuclear protein 2 (EBNA-2) gene. The time to tumor formation for cell lines containing a given mutant correlated with the ability of the mutant to transform B cells in vitro and with the ability of the mutant EBNA-2 gene to transactivate the EBV latent membrane protein in transient expression assays. These data indicate that EBNA-2 plays a critical role for B cell tumor growth in SCID mice and for lymphocyte transformation in vitro. EBV EBNA-2 transactivates expression of EBV and B cell genes and we have shown that EBNA-2 contains a 14 amino acid domain that directly activates transcription. Mutation of a single amino acid in this domain completely abolishes the ability to activate transcription and transform B cells in vitro. Substitution of the transcriptional activation domain of EBNA-2 with the activation domain of herpes simplex virus VP16 resulted in a chimeric virus that was able to transform B cells in vitro and transactivate expression of EBV and B cell genes. Thus, EBNA-2 and VP16 activate transcription by similar mechanisms and transcriptional activation is essential for EBV-induced B cell transformation in vitro and in vivo.