Marek's disease is a herpesvirus (Marek's disease virus [MDV])-induced pathology of chickens characterized by paralysis and the rapid appearance of T-cell lymphomas. Lymphoblastoid cell lines (LBCLs) derived from MDV-induced tumors have served as models of MDV latency and transformation. We have recently reported the construction of mutant MDVs having a deletion (M. S. Parcells et al., J. Virol. 69:7888-7898, 1995) and an insertion (A. S. Anderson et al., J. Virol. 72:2548-2553, 1998) within the unique short region of the virus genome. These mutant MDVs retained oncogenicity, and LBCLs have been established from the mutant-induced tumors. We report the characterization of these cell lines with respect to (i) virus structure within and reactivated from the cell lines, (ii) surface antigen expression, (iii) kinetics of MDV and marker gene induction, (iv) localization and colocalization of induced MDV antigens and beta-galactosidase (beta-Gal), and (v) methylation status of the region of lacZ insertion in recombinant- and non-recombinant-derived cell lines. Our results indicate that (i) recombinant-derived cell lines contain no parental virus, (ii) the established cell lines are predominantly CD4(+) CD8(-), (iii) the percentage of Lac-expressing cells is low (1 to 3%) but increases dramatically upon 5'-iododeoxyuridine (IUdR) treatment, (iv) lacZ expression is induced with the same kinetics as several MDV lytic-phase genes (pp38, US1, gB, gI, and US10), and (v) the regulation of lacZ expression is not mediated by methylation. Furthermore, the MDV-encoded oncoprotein, Meq, could be detected in cells expressing beta-Gal and various lytic antigens but did not appear to be induced by IUdR treatment. Our results indicate that regulation of the lacZ marker gene can serve as sensitive measure of virus lytic-phase induction and the reactivation from latency.