Kaposi sarcoma (KS) is the leading neoplasm of HIV-infected patients and is also found in several HIV-negative populations. Recently, DNA sequences from a novel herpesvirus, termed KS-associated herpesvirus (KSHV), or human herpesvirus 8 (HHV-8) have been identified within KS tissue from both HIV-positive and HIV-negative cases; infection with this agent has been proposed as a possible factor in the etiology or pathogenesis of the tumor. Here we have examined the pattern of KSHV/HHV-8 gene expression in KS and find it to be highly restricted. We identify and characterize two small transcripts that represent the bulk of the virus-specific RNA transcribed from over 120 kb of the KSHV genome in infected cells. One transcript is predicted to encode a small membrane protein; the other is an unusual polyadenylylated RNA that accumulates in the nucleus to high copy number. This pattern of viral gene expression suggests that most infected cells in KS are latently infected, with lytic viral replication likely restricted to a much smaller subpopulation of cells. These findings have implications for the therapeutic utility of currently available antiviral drugs targeted against the lytic replication cycle.