We developed a novel method for analysis of hepatitis C viral proteinase activity in cultured cells, in which the proteinase activity was measured as the enhancement of reporter gene expression. In this system, plasmids encoding a reporter gene, the enzyme gene, and the substrate gene were simultaneously transfected into COS-l cells. The reporter plasmid contains chloramphenicol acetyltransferase (CAT) gene downstream of an enhancer/promoter sequence derived from the human T-cell leukemia virus type-1 (HTLV-I) long-terminal repeat (LTR). The substrate expression plasmid was a triple chimera; HCV nonstructural protein 2 (NS2) and the Taxi protein of HTLV-I sandwiched the substrate polypeptide, which was inserted upstream of Taxi. This method assumes that since the HCV NS2 appears to be located in the lipid bilayer of endoplasmic reticulum (ER) membranes, the Taxi of the chimeric substrate was trapped on the surface of the ER in the absence of HCV proteinase activity. After release from the chimera by HCV proteinase-dependent cleavage, Taxi could transactivate the expression of the CAT gene through the enhancer sequence of HTLV-I LTR. This system should enable us to simply and safely screen the potential antiviral activity of proteinase inhibitors in vivo, although this system may be limited to proteinase inhibitors that are permeable to the plasma membrane. (C) 1995 Academic Press,Inc.