The effect of expression of the Epstein-Barr-virus (EBV) latent membrane protein (LMP1) derived from B-lymphocytes (B) and nasopharyngeal carcinoma (NPC) (C) on the in vitro growth and differentiation of a human keratinocyte line, Rhek-1, was analyzed in clonal growth and in in vitro differentiation assays. In contrast to the polygonal parental cells, the B-LMP1-expressing sublines were spindle-shaped while the C-LMP1-expressing cells were pleomorphic. Both B- and C-LMP1-expressing sublines showed increased proliferation as evidenced by: (1) higher colony-forming efficiency (CFE) and larger colony size at reduced serum levels; (2) an increased number of epithelial cell layers formed in the air-liquid-interface culture system and (3) increased expression of proliferative cell nuclear antigen (PCNA). At low serum concentration, the C-LMP1-expressing sublines formed larger colonies than those expressing B-LMP1. In the air-liquid-interface culture system, both B- and C-LMP1-expressing lines showed reduced epithelial differentiation resulting in reduced stratification and reduced involucrin expression similar to those of the cancer cell line, Siha. The results of the present study indicate that the expression of LMP1 in human keratinocytes is associated with morphological transformation and predisposes these cells to a more neoplastic phenotype. The structural difference between the 2 genes responsible for the functional differences and transforming ability will be pinpointed in further experiments.