Human herpesvirus 8 (HHV8) has been epidemiologically linked to the development of Kaposi's sarcoma (KS) and primary effusion lymphoma in individuals infected with human immunodeficiency virus. The HHV8 genome contains a large number of open reading frames that may encode viral genes that play a role in the disease process. A unique open reading frame designated K1 has been demonstrated to encode a transmembrane protein involved in signal transduction that may be a viral oncogene. In order to assess the activities of the K1 open reading frame, we cloned K1 and developed cellular expression systems and a transgenic mouse model. K1-specific RNA was detected in RNA from BC-3 HHV8-infected primary effusion lymphoma cells upon treatment with phorbol ester, indicating that K1 is a mainly expressed during the lytic cycle of the virus. K1-specific RNA was detected in RNA extracted from KS tumor tissue by reverse transcriptase polymerase chain reaction. We found that expression of K1 in NIH3T3 cells conferred upon them anchorage-independence, as indicated by growth in methylcellulose, and the ability to form tumors in nude mice, while control cells demonstrated neither characteristic of transformed cells. We found that expression of K1 in ECV304 endothelial cells resulted in the loss of contact inhibition. The predicted amino acid sequence of K1, derived from the nucleotide sequence of K1, suggested that several domains involved in signal transduction pathways were present, particularly in the spleen tyrosine kinase (Syk)/nuclear factor of activated T cells (NFAT) pathway, and the nuclear factor kappaB (NFkappaB) pathway. We used reporter and electrophoretic mobility shift assays to further characterize the way in which K1 may activate NFkappaB. Our results suggest that K1 engages tumor necrosis factor receptor activated factors (TRAFs) to drive NFkappaB activation by enlisting the inhibitor of kappaB kinase complex (IKK) to phosphorylate inhibitor of kappaB (IkappaBalpha) and allow NFkappaB to translocate to the nucleus. Our final results show that K1 induces an inflammatory phenotype that would be expected of an activator of NFkappaB. We conclude that K1 has a role to play in disease by contributing to the inflammatory phenotype and transformation of HHV8-infected cells.