A unique human retrovirus (human T-cell leukemia virus type II, HTLV-II), isolated from a patient with a T-cell variant of hairy-cell leukemia, has been shown to be distinct from the more common isolates of human T-cell leukemia virus. This virus was tested for its ability to transform normal human peripheral blood lymphocytes. The HTLV-II-infected T-cell line Mo-T was lethally x-irradiated and cocultivated with normal human peripheral blood lymphocytes. The cocultivation of normal cells with Mo-T cells resulted in the transformation of the normal cells as evidenced by the establishment of permanent cell lines. The transformed cells are infected with HTLV-II as shown by immunologic tests and molecular hybridization. The cells are of mature T-cell phenotype and constitutively produce lymphokines. An Epstein-Barr virus-transformed lymphoblast B-cell line established from peripheral blood cells of the patient Mo, designated Mo-B, also was found to be infected with HTLV-II. All HTLV-II-infected cells, including the Mo-B cells, were capable of transforming normal cells of T-cell phenotype by transmission of virus by cocultivation. These results indicate that HTLV-II infects both B and T cells but transforms normal human peripheral blood lymphocytes of T-cell phenotype.