While human T-cell leukemia virus type 1 (HTLV-1) is associated with the development of adult T-cell leukemia (ATL), HTLV-2 has not been reported to be associated with such malignant leukemias. HTLV-1 Tax1 oncoprotein transforms a rat fibroblast cell line (Rat-1) to form multiple large colonies in soft agar, and this activity is much greater than that of HTLV-2 Tax2. We have demonstrated here that the increased number of transformed colonies induced by Tax1 relative to Tax2 was mediated by a PDZ domain-binding motif (PBM) in Tax1, which is absent in Tax2. Tax1 PBM mediated the interaction of Tax1 with the discs large (Dlg) tumor suppressor containing PDZ domains, and the interaction correlated well with the transforming activities of Tax1 and the mutants. Through this interaction, Tax1 altered the subcellular localization of Dlg from the detergent-soluble to the detergent-insoluble fraction in a fibroblast cell line as well as in HTLV-1-infected T-cell lines. These results suggest that the interaction of Tax1 with PDZ domain protein(s) is critically involved in the transforming activity of Tax1, the activity of which may be a crucial factor in malignant transformation of HTLV-1-infected cells in vivo.