The human T-lymphotropic virus type I (HTLV-I) Tax protein is a transcriptional regulatory protein that has been suggested to play a causal role in the development of several HTLV-I-associated diseases. Tax regulates expression of its own LTR and of certain cellular promoters perhaps by usurping the function of the host transcriptional machinery. We have established a transgenic mouse model system to define the spectrum of tissues in vivo that are capable of supporting Tax-mediated transcriptional transactivation. Transgenic mice carrying the HTLV-I LTR driving expression of the Escherichia coli β-galactosidase (βgal) gene were generated, and this LTR-βgal gene was transcriptionally inactive in all tissues. When LTR-βgal mice were mated to transgenic mice carrying the same LTR driving expression of the HTLV-I tax gene, mice that carried both transgenes showed restricted expression of the βgal reporter gene in several tissues including muscle, bone, salivary glands, skin, and nerve. In addition, a dramatic increase in the number of βgal-expressing cells was seen in response to wounding. These observations provide direct evidence for viral transactivation in vivo, delimit the tissues capable of supporting that transactivation, and provide a model system to study the mechanism of gene regulation by Tax. © 1993 Academic Press.