Alternative splicing of RNA increases the coding potential of the genome and allows for additional regulatory control over gene expression. The full extent of alternative splicing remains to be defined but is likely to significantly expand the size of the human transcriptome. There are several examples of mammalian viruses regulating viral splicing or inhibiting cellular splicing in order to facilitate viral replication. Here, we describe a viral protein that induces alternative splicing of a cellular RNA transcript. Epstein-Barr virus (EBV) SM protein is a viral protein essential for replication that enhances EBV gene expression by enhancing RNA stability and export. SM also increases cellular STAT1 expression, a central mediator of interferon signal transduction, but disproportionately increases the abundance of the STAT1 splicing isoform, which can act as a dominant-negative suppressor of STAT1␣. SM induces splicing of STAT1 at a novel 5 splice site, resulting in a STAT1 mRNA incapable of producing STAT1␣. SM-induced alternative splicing is dependent on the presence of an RNA sequence to which SM binds directly and which can confer SM-dependent splicing on heterologous RNA. The cellular splicing factor ASF/SF2 also binds to this region and inhibits SM-RNA binding and SM-induced alternative splicing. These results suggest that viruses may regulate cellular gene expression at the level of alternative mRNA splicing in order to facilitate virus replication or persistence in vivo.The Epstein-Barr virus (EBV) SM protein is expressed early in the lytic phase of virus replication and regulates EBV and cellular gene expression posttranscriptionally (for a review, see reference 36). SM is essential for efficient expression of EBV genes during early and late stages of lytic replication, EBV DNA replication, and virion production (3,15,16). SM protein binds to RNA and enhances export and stability of intronless EBV mRNAs (6,12,18,30,32,35). SM interacts with cellular export proteins and is thought to act as a bridge between target mRNA and the cellular export machinery (4,12,19). However, no specific RNA sequence has been established as a unique target for SM binding.The effects of SM on host cellular gene expression during lytic EBV replication remain to be fully characterized. When inducibly expressed in EBV-negative cells, SM has a broadly inhibitory effect on cellular mRNA accumulation (31). Nevertheless, SM causes several cellular transcripts to accumulate at higher levels (31). These transcripts include STAT1 and several interferon (IFN)-stimulated genes. The STAT1 protein is an integral mediator of both type I (IFN-␣/) and type II (IFN-␥) IFN signal transduction pathways (for a review, see reference 10). STAT1 homodimers, when activated by IFN-␥, bind GAS sequences upstream of IFN-␥-responsive genes and stimulate transcription. Activated STAT1 also forms a trimeric complex with STAT2 and IRF-9 (IFN regulatory factor 9) and binds and activates transcription downstream of IFN-stimulated response element sequences,...