Certain lymphomas in AIDS patients, such as primary effusion lymphoma (PEL), are closely associated with the lymphotropic γ herpes virus Kaposi’s sarcoma-associated herpes virus (KSHV), also called human herpesvirus 8. The virus is thought to be essential for tumorigenesis, yet systems to investigate PEL in vivo are rare. Here we describe PEL tumorigenesis in a new xenograft model. Embedded in Matrigel, PEL cells formed rapid, well-organized, and angiogenic tumors after s.c. implantation of C.B.17 SCID mice. Without Matrigel we did not observe comparable tumors, which implies that extracellular support and/or signaling aids PEL. All of the tumors maintained the KSHV genome, and the KSHV latent protein LANA/orf73 was uniformly expressed. However, the expression profile for key lytic mRNAs, as well as LANA-2/vIRF3, differed between tissue culture and sites of implantation. We did not observe a net effect of ganciclovir on PEL growth in culture or as xenograft. These findings underscore the importance of the microenvironment for PEL tumorigenesis and simplify the preclinical evaluation of potential anticancer agents.