Kaposi's sarcoma (KS)-associated herpesvirus (KSHV) is involved in the pathogenesis of KS, primary effusion lymphoma, and multicentric Castleman's disease. K-bZIP, the protein encoded by the open reading frame K8 of KSHV, is a member of the basic region-leucine zipper family of transcription factors. We studied the mechanisms that underlie KSHV-induced oncogenesis by investigating whether K-bZIP perturbs signaling through transforming growth factor beta (TGF-beta), which inhibits proliferation of a wide range of cell types. K-bZIP repressed TGF-beta-induced, Smad-mediated transcriptional activity and antagonized the growth-inhibitory effects of TGF-beta. Since both K-bZIP and Smad are known to interact with CREB-binding protein (CBP), the effect of CBP on inhibition of Smad-mediated transcriptional activation by K-bZIP was examined. K-bZIP mutants, which lacked the CBP-binding site, could not repress TGF-beta-induced or Smad3-mediated transcriptional activity. Overexpression of CBP restored K-bZIP-induced inhibition of Smad3-mediated transcriptional activity. Competitive interaction studies showed that K-bZIP inhibited the interaction of Smad3 with CBP. These results suggest that K-bZIP, through its binding to CBP, disrupts TGF-beta signaling by interfering with the recruitment of CBP into transcription initiation complexes on TGF-beta-responsive elements. We propose a possibility that K-bZIP may contribute to oncogenesis through its ability to promote cell survival by repressing TGF-beta signaling.