Epstein-Barr virus (EBV) is a human herpesvirus which has been studied intensively for its role in certain human tumors. It also serves as a model of herpesviral latency because it establishes an immediate, latent infection in human B cells. When EBV infects quiescent, primary B cells it induces their continuous proliferation to yield growth-transformed B-cell lines in vitro. The lytic or productive phase of EBV's life cycle is induced by the expression of the viral BZLF1 gene in latently infected cells. The BZLF1 protein is a transactivator, which selectively binds to two classes of distinct DNA sequence motifs. One class is similar to the motifs that are bound by members of the AP-1 transcription factor family to which BZLF1 belongs. The second class, which contains CpG motifs, is predominant in viral promoters of early lytic genes and is BZLF1's preferred or exclusive target sequence when methylated. The BZLF1 gene is transiently expressed in newly infected B cells but fails to induce EBV's lytic cycle, potentially because the virion DNA is unmethylated. Here we report that the lack of 5-methylcytosine residues in CpG sites of virion DNA prevents the expression of essential lytic genes indispensable for viral DNA amplification during productive infection. This finding indicates that BZLF1 transactivates these promoters in a methylation-dependent fashion and explains how progeny virus synthesis is abrogated in newly infected B cells. Our data also reveal that viral lytic DNA synthesis precludes CpG methylation of virion DNA during EBV's lytic, productive cycle, which can be overcome by the ectopic expression of a prokaryotic cytosine methyltransferase to yield CpG-methylated virion DNA. Upon infection of B cells, randomly CpG-methylated virion DNA induces high expression of essential lytic genes in contrast to virion DNA free of 5-methylcytosine residues. Our data suggest that unmethylated virion DNA is part of EBV's strategy to prevent the viral lytic phase in newly infected B cells, allowing it to establish its characteristic latent infection in them.