The normal cell cycle is regulated by several molecules, such as the tumor-suppressor protein pRb, the G1 cyclins, the cyclin-dependent kinases, and their inhibitors. These regulators are targeted by negative growth regulatory signals, such as that provided by TGF-beta. Here, we show that the presence of either wild-type EBV or its transforming latent membrane protein-1 (LMP-1) results in the loss of TGF-beta 1-mediated growth inhibition in human B cells. Chemical cross-linking with 125I-labeled TGF-beta 1 showed an essentially normal TGF-beta receptor profile in EBV-positive and EBV-negative Burkitt's lymphoma cell lines, and these receptors were shown to be functional in transducing signals, as evidenced by the TGF-beta 1-mediated modulation of junB gene expression. However, TGF-beta 1 did not induce dephosphorylation of pRb in EBV (or LMP-1)-positive cells as opposed to EBV-negative cells, suggesting a dichotomy in the TGF-beta 1 signaling pathway leading to separable gene regulatory and growth inhibitory responses. Furthermore, LMP-1 was found to induce the expression of cyclin D2; normal B cells or EBV-negative Burkitt's lymphoma cells do not express D-type cyclins. Taken together, these data point to a potential mechanism underlying EBV-mediated B cell transformation whereby constitutive induction of key cell cycle regulators by LMP-1 can lead to pRb hyperphosphorylation and uncontrolled cell proliferation.