THE hepatitis B virus (HBV) transactivator protein HBx is enigmatic in that it stimulates a striking variety of promoters which do not share a common cis-regulatory element^1–5. As it does not bind to DNA^6,7, it has been speculated that HBx acts indirectly through cellular pathways^4,6–8. Under certain conditions HBx can have an oncogenic potential, which may be relevant for HBV-associated liver carcinogenesis^9–11, but until now the mechanism for transactivation and cell transformation by HBx was unclear. We report here that HBx uses a complex signal transduction pathway for transactivation. An increase in the endogenous protein kinase C (PKC) activator sn-l,2-diacylglycerol and the subsequent activation of PKC give rise to activation of the transcription factor AP-1 (Jun–Fos). As a result, HBx transactivates through binding sites for AP-1 and other PKC-dependent transcription factors (AP-2, NF-κB), thereby explaining the as-yet incomprehensible variety of HBx-inducible genes. As the PKC signal cascade also mediates cell transformation by tumour-promoting agents, the mechanism presented here might account for the oncogenic potential of HBx.