Viruses have developed numerous strategies to counteract the host cell defense. Kaposi's sarcoma-associated herpesvirus (KSHV) is a DNA tumor virus linked to the development of Kaposi's sarcoma, Castleman's disease, and primary effusion lymphoma (PEL). The virus-encoded viral interferon regulatory factor 3 (vIRF-3) gene is a latent gene which is involved in the regulation of apoptosis, cell cycle, antiviral immunity, and tumorigenesis. vIRF-3 was shown to interact with p53 and inhibit p53-mediated apoptosis. However, the molecular mechanism underlying this phenomenon has not been established. Here, we show that vIRF-3 associates with the DNA-binding domain of p53, inhibits p53 phosphorylation on serine residues S15 and S20, and antagonizes p53 oligomerization and the DNA-binding affinity. Furthermore, vIRF-3 destabilizes p53 protein by increasing the levels of p53 polyubiquitination and targeting p53 for proteasome-mediated degradation. Consequently, vIRF-3 attenuates p53-mediated transcription of the growth-regulatory p21 gene. These effects of vIRF-3 are of biological relevance since the knockdown of vIRF-3 expression in KSHV-positive BC-3 cells, derived from PEL, leads to an increase in p53 phosphorylation, enhancement of p53 stability, and activation of p21 gene transcription. Collectively, these data suggest that KSHV evolved an efficient mechanism to downregulate p53 function and thus facilitate uncontrolled cell proliferation and tumor growth.