The Epstein-Barr virus (EBV) BARF1 gene encodes a soluble colony-stimulating factor 1 (CSF-1) receptor that neutralizes the effects of CSF-1 in vitro. To study the effect of BARF1 on EBV-induced transformation, we added recombinant BARF1 to B cells in the presence of EBV. BARF1 did not enhance transformation of B cells by EBV in vitro. To study the role of BARF1 in the context of EBV infection, we constructed a recombinant EBV mutant with a large deletion followed by stop codons in the BARF1 gene as well as a recombinant virus with a wild-type BARF1 gene. While BARF1 has previously been shown to act as an oncogene in several cell lines, the EBV BARF1 deletion mutant transformed B cells and initiated latent infection, and the B cells transformed with the BARF1 mutant virus induced tumors in SCID mice with an efficiency similar to that of the wild-type recombinant virus. Since human CSF-1 stimulates secretion of alpha interferon from mononuclear cells and BARF1 encodes a soluble CSF-1 receptor, we examined whether recombinant BARF1 or BARF1 derived from EBV-infected B cells could inhibit alpha interferon secretion. Recombinant BARF1 inhibited alpha interferon secretion by mononuclear cells in a dose-dependent fashion. The B cells transformed with mutant BARF1 EBV showed reduced inhibition of alpha interferon secretion by human mononuclear cells when compared with the B cells transformed with wild-type recombinant virus. These experiments indicate that BARF1 expressed from the EBV genome directly inhibits alpha interferon secretion, which may modulate the innate host response to the virus.