A transforming activity associated with Chinese nasopharyngeal carcinoma (NPC) cell line CNE2 DNA has been identified by transfer into nontransformed promotion-sensitive mouse JB6(P+) C141 cells. To clone this transformation-associated sequence, we carried out three cycles of transfection, followed by cloning of anchorage-independent transformants in soft agar. A tertiary CNE/JB6 clonal transfectant cell line 625 whose DNA showed transforming activity, as indicated in both soft-agar assay and nude-mice implantation, was used to make a genomic library in the vector lambda dash. Using the human repeated sequence Blur 8 to screen the library, we obtained 10 human Alu-positive clones. A cloned Alu-positive insert of 16 kbp, CNE 323, was characterized in detail. CNE 323 transferred moderate transforming activity when introduced into JB6 P+ cells and showed no homology to Ha-, Ki-, or N-ras genes; human promotion sensitivity genes; src, myb, jun, myc, fos, raf, or int-2 oncogenes; or epidermal growth factor receptor. The isolated CNE 323 DNA sequence appeared to preserve the genomic structure of the original sequence found in CNE2 cells and in nude mouse tumors induced by CNE2 cells or by CNE/JB6 transfectant cells, indicating that the cloned NPC sequence was activated during NPC carcinogenesis and not during transfection or construction of the library, and that the cloned sequence or a larger sequence of which it was part played a role in tumor formation. Finally, we identified a 1.3-kb mRNA that hybridizes to a subclone of the 16-kb NPC sequence in CNE2 cell poly (A)+ RNA.