Human T-lymphotropic virus type 1 (HTLV-1) is a suspected causative agent of adult T-cell leukemia. One of the viral genes encodes a protein (tat) that not only results in transactivation of viral gene expression but may also regulate the expression of certain cellular genes that are important for cell growth. Transgenic mice that expressed the authentic tat protein under the control of the HTLV-1 long terminal repeat were generated, and cell types that are permissive for the viral promoter and the effects of the tat gene on these cells were studied. Three of eight founder mice with high levels of expression of the transgene in muscle were bred and then analyzed. All developed soft tissue tumors at multiple sites between 13 to 17 weeks of age. This phenotype was transmitted to nine of nine offspring that inherited the tat gene and were available for analysis. The remaining five founders expressed the transgene in the thymus, as well as in muscle. This second group of mice all exhibited extensive thymic depletion and growth retardation; in all of these mice, death occurred between 3 to 6 weeks of age before tumors became macroscopically visible. The tat gene under the control of the HTLV-1 regulatory region showed tissue-specific expression and the tat protein efficiently induced mesenchymal tumors. The data establish tat as an oncogenic protein and HTLV-1 as a transforming virus.