Single cell studies aimed at clarifying the nature and clonality of Hodgkin and Reed-Sternberg (HRS) cells of classical Hodgkin's disease (HD) have so far produced conflicting results. Using an improved single cell procedure, the HRS cells of 25 patients with nodular sclerosing HD lacking B- and T-cell antigens, with and without Epstein-Barr virus infection, were analyzed for the presence of immunoglobulin (Ig) gene rearrangements. One patient with HD developed follicular lymphoma 2 years later. Both lymphomas originated from a common precursor identified as a germinal center B cell. The data show that all but one of the investigated cases harbored rearranged Ig genes, which were clonal in all instances and carried a high load of somatic mutations. The Ig coding capacity was preserved in 18 of the 24 cases (75%) with rearrangements. However, expression of Ig messenger RNA was not detectable in the HRS cells with the exception of Ig kappa light chain expression in some tumor cells of 1 case. The lack of Ig gene transcription in HRS cells was confirmed by analyzing the HD cell lines L428 and KM-H2 in transient transfection experiments. An Ig promoter/enhancer reporter construct showed virtually no activity in these cells compared to 5 control B-cell lines. We conclude that (1) classical HD is a B-cell lymphoma in most instances, (2) HRS cells are clonal without any exception, (3) they are derived from germinal center B-cells that (4) mostly lack crippling mutations but (5) have consistently lost their Ig gene transcription ability, due to functional defects in the Ig gene regulatory elements.