The human T-cell leukemia viruses (HTLV) are associated with T-cell malignancies in man and will transform normal human T cells in vitro. The mechanism of malignant transformation by HTLV is unknown but appears to be distinct from that of other classes of retroviruses, which induce malignant transformation through viral or cellular oncogenes. Recently a new gene, termed x, was identified in HTLV. This gene has been hypothesized to be the transforming gene of HTLV because of its conservation within the HTLV class of retroviruses. By in vitro mutagenesis of the HTLV-II x gene, it is now demonstrated that the presence of a functional x gene product is necessary for efficient HTLV transcription. Therefore, these studies provide direct evidence for an important function of the x gene in HTLV replication. The functional analogies between the x gene and transcriptional regulatory genes of some DNA viruses suggest that these viruses share similar mechanisms for cellular transformation.