EBV is found to be associated with 100% of poorly or undifferentiated nasopharyngeal carcinomas, a tumor of epithelial origin. The latent membrane protein-1 (LMP1) of EBV, may play a causal role in the development of this disease. The experiments initiated here were designed to examine the activity of LMP1 in vivo in the epidermis of PyLMP1 transgenic mice in relation to its putative role in carcinogenesis. Transgenic positive epidermis showed a 2-3-fold increase in the mitotic index, coupled with an increased level of expression of proliferative cytokeratin markers (K6 and K14) over controls. These results provide direct evidence that LMP1 induces proliferation in otherwise normal epithelial cells in vivo. To assess the role of LMP1 in tumorigenic progression, transgenic mice were treated topically with chemical carcinogens. PyLMP1 mice were highly sensitive to chemical carcinogens, developing significantly more small papillomas at a faster rate than controls. Furthermore, LMP1 could substitute for 12-O-tetradecanoylphorbol-13-acetate treatment in tumor promotion. However, LMP1 inhibited expansion of the benign lesions and did not enhance progression of the lesions to carcinomas or the progression of these to the more malignant spindle cell carcinomas. These data demonstrate that, early in the carcinogenic process, LMP1 acts as a tumor promoter after chemical initiation; but, paradoxically, it may also introduce a hurdle against expansion or progression of a lesion.