Kaposi's sarcoma-associated herpesvirus (KSHV) or human herpesvirus 8 (HHV-8) is a novel herpesvirus implicated as the causative agent of Kaposi's sarcoma (KS), primary effusion lymphoma, and some cases of multicentric Castleman's disease. KSHV persists in the majority of KS spindle (endothelial tumor) cells and lymphoid cells in a latent form, with only a limited set of viral genes expressed in a tissue-specific manner. Here, we report the identification of a family of alternatively-spliced transcripts of approximately 7.5 kb expressed in latently infected body cavity-based lymphoma (BCBL) cell lines which are predicted to encode membrane proteins with similarities to the LMP2A and LMP1 proteins of Epstein-Barr virus. In two highly divergent sequence variants of the right end of the KSHV genome, alternative splicing of eight exons located between KSHV ORF 75 and the terminal repeats yields transcripts appropriate for proteins with up to 12 transmembrane domains, followed by a hydrophilic C-terminal, presumably cytoplasmic, domain. This C-terminal domain contains several YxxI/L motifs reminiscent of LMP2A and a putative TRAF binding site as in LMP1. In latently (persistently) infected BCBL cells the predominant transcript utilizes all eight exons, whereas in phorbol-ester-induced cells, a shorter transcript, lacking exons 4 and 5, is also abundant. We also found evidence for an alternative use of exon 1. Transfection of an epitope-tagged cDNA construct containing all exons indicates that the encoded protein is localized on cell surface and intracellular membranes, and glutathione S-transferase pull-down experiments indicate that its cytoplasmic domain, like that of LMP1, interacts with TRAF1, -2, and -3. Two of 20 KS patients had antibodies to the hydrophilic C-terminal domain, suggesting that the protein is expressed in vivo.