EBNA-3 is one of the Epstein-Barr virus (EBV)-encoded nuclear antigens that is indispensable for immunoblastic transformation and sustained proliferation of B-lymphocytes. The molecular mechanisms responsible for the function of EBNA-3 are poorly understood. We previously found that EBNA-3 interacts with an immunophilin-like protein XAP2/ARA9/AIP, which in mammalian cells is known to interact with the latent aryl hydrocarbon receptor (AhR). AhR is a ligand-inducible transcription factor that mediates cellular responses to environmental pollutants, such as 2,3,7,8-tetrachloro-dibenzo-p-dioxin (TCDD). In this study, we show that EBNA-3 interacts specifically with AhR. The stability of this interaction is determined by the activation state of AhR and its association with XAP2. We and others have demonstrated that XAP2 retains the nonactivated AhR in the cell cytoplasm. However, in the presence of TCDD, the effect of XAP2 on the intracellular localization of AhR was counter-acted by EBNA-3, resulting in nuclear translocation of the AhR. In addition, EBNA-3 enhanced transactivation function by the ligand-activated AhR in cells, as assessed by reporter gene assays. Our data suggested that EBNA-3 plays a role in facilitating the ligand-dependent AhR activation process. Following activation of the AhR, we also observed that EBNA-3 counteracted the inhibitory effect of TCDD on the growth of EBV-carrying lymphoblasts. Taken together, our studies revealed a novel interaction between EBV- and AhR-dependent cellular pathways that control cell proliferation and survival.