Infections by viruses are associated with approximately 12% of human cancer. Kaposi's sarcoma-associated herpesvirus (KSHV) is causally linked to several malignancies commonly found in AIDS patients. The mechanism of KSHV-induced oncogenesis remains elusive, due in part to the lack of an adequate experimental system for cellular transformation of primary cells. Here, we report efficient infection and cellular transformation of primary rat embryonic metanephric mesenchymal precursor cells (MM cells) by KSHV. Cellular transformation occurred at as early as day 4 after infection and in nearly all infected cells. Transformed cells expressed hallmark vascular endothelial, lymphatic endothelial, and mesenchymal markers and efficiently induced tumors in nude mice. KSHV established latent infection in MM cells, and lytic induction resulted in low levels of detectable infectious virions despite robust expression of lytic genes. Most KSHV-induced tumor cells were in a latent state, although a few showed heterogeneous expression of lytic genes. This efficient system for KSHV cellular transformation of primary cells might facilitate the study of growth deregulation mechanisms resulting from KSHV infections.