We have analyzed the human B-cell tumors that arise spontaneously in SCID mice who have been given transplants of peripheral blood lymphocytes from EpStein-Barr virus (EBV)-seropositive donors to determine if patterns of EBV gene expression are correlated with phenotypic changes in the tumor B cells. Tumor cells mere separated into two B-cell subsets by cell sorting on the basis of differential coexpression of membrane CD23 and CD38. One subset showed intermediate levels of CD23 and CD38 expression (CD23(int)tCD38(int)), while a second subset had low-level CD23 but high-level CD38 expression (CD23(lo)CD38(hi)). The CD23(int)tCD38(int) cells had a high proliferative index and secreted little immunoglobulin in vitro; the CD23(lo)CD38(hi) cells had a low proliferative index and high-level immunoglobulin secretion. We next analyzed the sorted cells for viral transcripts associated with latency (EBNA-1, EBNA-2, and LMP-1) or lytic cycle replication (ZEBRA and gp350 envelope protein). Only latent cycle transcripts were found in CD23(int)CD38(int) cells, whereas lytic cycle transcripts and transforming virus were present in the CD23(lo)CD38(h1) cells. Finally, we generated short-term tell lines from the sorted CD23(int)CD38(int) cells and transferred these cells to SCID recipients. The resulting secondary tumors were predominantly CD23(lo)CD38(hi), suggesting that the CD23(int)CD38(int) lymphoblastoid cells are precursors to the well-differentiated, plasmacytoid CD23(lo)CD38(hi) cells. These observations are discussed in the context of a three-step model for EBV-associated lymphomagenesis in humans.