Transgenic mice containing the HTLV-I tax gene develop tumors of peripheral nerve sheaths,iris, adrenal medulla and salivary gland, myopathy and localized lymph node hyperplasias. The mechanisms leading to these abnormalities remain unclear, but may involve the deregulation of cellular genes important for cell growth and differentiation. The expression of tax in these transgenic mice has been correlated with the induction of the genes for the interleukin-2 receptor (IL-2-R), the granulocyte-macrophage, colony-stimulating factor (GM-CSF), and more recently, nerve growth factor (NGF). Cell lines from the peripheral nerve and salivary tumors appear to secrete significant quantities of IL-6 and perhaps other B-cell-related growth factors, which may account for the lymphadenopathy associated with these tumors. This transgenic mouse system provides an important in vivo model for HTLV-I-induced transformation and tax activation of growth-regulating genes.