Activation-induced cytidine deaminase (AID), the enzyme responsible for induction of sequence variation in immunoglobulins (Igs) during the process of somatic hypermutation (SHM) and also Ig class switching, can have a potent mutator phenotype in the development of lymphoma. Using various Epstein-Barr virus (EBV) recombinants, we provide definitive evidence that the viral nuclear protein EBNA3C is essential in EBV-infected primary B cells for the induction of AID mRNA and protein. Using lymphoblastoid cell lines (LCLs) established with EBV recombinants conditional for EBNA3C function, this was confirmed, and it was shown that transactivation of the AID gene (AICDA) is associated with EBNA3C binding to highly conserved regulatory elements located proximal to and upstream of the AICDA transcription start site. EBNA3C binding initiated epigenetic changes to chromatin at specific sites across the AICDA locus. Deep sequencing of cDNA corresponding to the IgH V-D-J region from the conditional LCL was used to formally show that SHM is activated by functional EBNA3C and induction of AID. These data, showing the direct targeting and induction of functional AID by EBNA3C, suggest a novel role for EBV in the etiology of B cell cancers, including endemic Burkitt lymphoma.