The Epstein-Barr virus EBNA-1 gene product is essential for latent replication of the virus. In transformed cells characterized by the most restricted patterns of viral latent gene expression, EBNA-1 transcription is driven from the Fp promoter. We have used genetic and biochemical techniques to study the promoter-proximal elements that regulate Fp expression in B cells. We show that a 114-bp fragment of DNA spanning the Fp "TATA" box functions as a remarkably active transcriptional regulatory element in B cells. Two host factors, Sp1 and LR1, regulate Fp transcription from the promoter-proximal region. Sp1 binds a single site just downstream of the TATA box, and LR1 binds two sites just upstream of the TATA box. Transcripts from both the viral genome and the minimal promoter initiate at the same unique site, and one function of LR1 at Fp is to direct initiation to this unique start site. In contrast to Sp1, which is ubiquitous, LR1 is present only in activated B cells and may contribute to cell-type-specific transformation by Epstein-Barr virus.