Kaposi sarcoma herpesvirus (KSHV) is specifically associated with Kaposi sarcoma (KS) and 2 B cell lymphoproliferative diseases, namely primary effusion lymphoma (PEL) and multicentric Castleman disease (MCD). KS, PEL, and MCD are largely incurable and poorly understood diseases most common in HIV-infected individuals. Here, we have revealed the role of viral FLICE-inhibitory protein (vFLIP) in the initiation of PEL and MCD by specifically expressing vFLIP at different stages of B cell differentiation in vivo. Mice showed MCD-like abnormalities and immunological defects including lack of germinal centers (GCs), impaired Ig class switching, and affinity maturation. In addition, they showed increased numbers of cells expressing cytoplasmic IgM-λ, a thus far enigmatic feature of the KSHV-infected cells in MCD. B cell–derived tumors arose at high incidence and displayed Ig gene rearrangement with downregulated expression of B cell–associated antigens, which are features of PEL. Interestingly, these tumors exhibited characteristics of transdifferentiation and acquired expression of histiocytic/dendritic cell markers. These results define immunological functions for vFLIP in vivo and reveal what we believe to be a novel viral-mediated tumorigenic mechanism involving B cell reprogramming. Additionally, the robust recapitulation of KSHV-associated diseases in mice provides a model to test inhibitors of vFLIP as potential anticancer agents.