Kaposi’s sarcoma-associated herpes virus (KSHV) contributes to the pathogenesis of Kaposi’s sarcoma and primary effusion lymphomas. KSHV encodes a G protein-coupled receptor (KSHV-GPCR) that signals constitutively and transforms NIH3T3 cells. Here, we show that KSHV-GPCR transformation requires activation of the small G protein Rac1 and its effector, the p21-activated kinase 1 (Pak1). Either transient or sustained expression of KSHV-GPCR activated both Rac1 and Pak1. Furthermore, expression of dominant-negative mutants of Rac (RacN17) or Pak1 (PakR299, Pak-PID) inhibited KSHV-GPCR-induced focus formation and growth in soft agar. We also demonstrate that signaling from Pak1 to nuclear factor-κB (NFκB) is required for cell transformation induced by KSHV-GPCR. KSHV-GPCR induced transcriptional activation by NFκB. This process is inhibited by the PAK-PID, whereas reciprocally, expression of constitutively active Pak1 (PakL107F) activated NFκB comparably to KSHV-GPCR. The Pak-PID and RacN17 inhibited the KSHV-GPCR-induced phosphorylation of inhibitor of κB kinase-β and inhibitor of κB-α, implying that it is Pak1-dependent phosphorylation and subsequent destruction of the inhibitor of κB proteins that allows NFκB activation. Finally, experiments with the KSHV-GPCR inverse agonist interferon-γ-inducible protein-10, the Gα_i inhibitor pertussis toxin, and an inhibitor of phosphatidylinositol 3′-kinase, wortmannin, indicate that signaling through the Gα_i pathway and phosphatidylinositol 3′-kinase contributes to the cell transformation and NFκB activation induced by the KSHV-GPCR.